Month: February 2013
LMIR – OCBC
DOWNGRADE TO HOLD
- 4Q12 in line
- Good occupancy
- Downgrade to HOLD
4Q12 in line
LMIRT posted 4Q12 gross rental income of S$33.0m, up 35% YoY. The increase was primarily due to the contributions from Pluit Village and Plaza Medan Fair (acquired in 4Q11) and marginal contributions from the six acquisitions made in 4Q12. Total revenue (equivalent to gross rental income in 4Q12) fell 11% YoY to S$33.0m. This is because of the absence of the service charge and utilities recovery following the outsourcing of the operational services to a third-party operating company with effect from 1 May 2012. Net property income margin was at 93.4%, down 3.2 ppt QoQ. Management communicated that 4Q12 NPI margin is more reflective of future margins. Finance costs more than doubled to S$6.5m (+106% YoY), chiefly from additional interest expense and amortisation of transaction costs as a result of the issuance of S$250m and S$75m of notes under the EMTN Programme in Jul 2012 and Nov 2012 respectively. 4Q12 results were generally in line with our expectations; DPU of 0.74 S cents formed 97% of our estimate.
Healthy balance sheet
NAV per unit rose 6.3% QoQ to 56.16 S cents, giving a current P/B of 0.93x. Gearing remains healthy at 24.5%. The weighted average maturity of debt facilities at end FY12 was approximately three years, with no refinancing required until June 2014. 68% of LMIRT’s S$1.75b asset portfolio remains unencumbered. Management indicates that the average weighted all-in cost of debt for FY13 is likely to be 5.5%-5.7%. Management intends for LMIRT to amass a S$4b portfolio over the next three to five years. The portfolio occupancy rate of 94% as at 4Q12 is significantly above Indonesia’s retail industry average rate of ~88%.
Downgrade to HOLD
We maintain our fair value of S$0.52, however, since that is near the current unit price, we downgrade LMIRT to a HOLD. We estimate a FY13F yield of 6.9%.
ART – DBSV
Targets in sight
• Pre-emptive fund raising suggests potential acquisitions
• S$300m acquisitions assumed; re-rating catalysts to hinge on clarity of potential targets
• BUY, TP raised to S$1.53
Pre-emptive placement boosts acquisition kitty by S$150m. Ascott Residence Trust (Ascott REIT) recently completed a private placement exercise, which boosted its acquisition kitty by an additional S$150m. The issue price for the new units at $1.305 implies a 4.6% discount to the adjusted VWAP on 28 Jan 13 (placement agreement entered into with the placement agents) and a c3% discount to its latest reported NAV/share. A pre-emptive exercise with no targets identified at this point, with proceeds to be utilised across a myriad of uses – potential acquisitions, asset enhancements or debt repayment.
Awaiting deployment of proceeds, assuming acquisitions of S$300m in forecasts. We believe that proceeds will be utilised towards value accretive and yield enhancing acquisitions. Management is reviewing opportunities in the region and has previously alluded to be focusing on higher growth markets within Asia. We now factor in S$300m worth of acquisitions (@ 6.0% yield) in our forecasts, assuming a target post acquisition gearing of c39%. We estimate that every additional S$50m in acquisitions will raise gearing by 1 ppt, and DPU estimates and our TP by c.1%-1.5%.
Acquisition driven re-rating, BUY, TP revised to S$1.53. The stock price has declined c5% post placement, which we believe is due to the lack of clarity in acquisition targets but expect management to execute opportunistically soon. While slight dilution in DPU is expected prior to actual deployment of funds, we expect this to be compensated by a higher growth rate from FY14F onwards. BUY, TP raised to S$1.53 after factoring in acquisitions.
CLT – AmFraser
Acquisition engine running on full steam
Flexing its muscles on acquisitions. Cache announced that it has entered into a call option agreement with industrial developer Precise Development (PDPL) to acquire Precise Two, a newly‐completed three‐storey fully ramp‐up warehouse with a gross GFA of approx. 284,381 sq ft. Purchase consideration for the property is around S$55.2mil. Subject to attaining regulatory approval from JTC Corporation, the acquisition is expected to be completed in April 2013.
Beefing up its competitive position in the logistics space. Cache’s planned acquisition of Precise Two is, in our opinion, hugely complementary to its existing portfolio strengths. Boasting approx. 23% market share of Singapore’s ramp‐up logistics warehouses, Cache’s proposed acquisition of Precise Two distinctly accelerates its competitive edge. Given Precise Two’s quality technical specifications such as heavy floor loading of 50kn/m2 for the ground floor, strategic location in the Jurong Industrial Precinct as well as its proximity to major expressways PIE and AYE, the deal, should it go through successfully, would certainly be a major feather in its cap.
Harvesting diversification rewards. Upon completion of the acquisition, Cache and PDPL would enter into an agreement to which Precise Two would be leased back to PDPL. As the master lease agreement provides for a lease term of six years with a renewal option for an additional six years, the acquisition would strengthen Cache’s lease expiry profile and reduce its asset concentration risk on CWT Commodity Hub. CWT Commodity Hub’s revenue contribution is estimated to fall from 37.8% to 36.5% following the acquisition of Precise Two. Another plus for Cache would be a reduced reliance on master lessees CWT and C&P for rental income.
Yield‐accretive. We assume that the acquisition of Precise Two would be financed en
FE-HTrust – OCBC
RESULTS IN LINE FOR 1 AUG-31 DEC 2012
- Results as expected
- Upscale hotels facing a squeeze
- Maintain HOLD
First results since IPO
Far East Hospitality Trust (FEHT) reported its first results since listing (for the financial period 1 Aug-31 Dec 2012) that were generally in line with our expectations. While gross revenue, at S$42.2m, was 0.7% lower than the pro-rated forecast in the prospectus, net property income of S$38.8m was 0.2% higher than the forecast as a result of lower operating expenses. Active management of finance costs and other trust expenses helped to lift its income available for distribution 4.5% above its forecast to S$33.6m.
Weak serviced residence revenue
Gross revenue from hotels was 0.6% higher than forecast at S$33.9m; stronger rental income from commercial spaces and an increase in the meetings and banquet business (e.g. at Changi Village) helped to make up for RevPAR of S$171 being 1.7% lower than forecast. Gross revenue from serviced residences (SRs) was 5.7% less than forecast at S$8.3m due to corporate cutbacks in 2H12. Corporate accounts that were lost during the previous AEI were not satisfactorily replaced. The SRs are trying to diversify away from banking/financials sector clients and are looking more at other services and oil and gas. Valuation of the portfolio increased by 0.9% to S$2.16b.
Mid-tier hotels fairing better
Among FEHT’s properties, the upscale hotels such as Quincy are facing more pressure than the mid-tier hotels. An industry contact explained that 4-star hotels are being squeezed by 5-star hotels, which have been lowering rates. We understand that if FEHT buys the Rendezvous Hotel (298 rooms) from Straits Trading, the purchase is likely to take place around end 2Q13. Negotiations and due diligence are still ongoing and there is no assurance that the transaction will proceed.
Maintain HOLD
We update our assumptions for Oasia’s future RevPAR to levels closer in line with its peer hotels, and raise our fair value from S$1.02 to S$1.05. However, we maintain our HOLD rating on FEHT on valuation grounds.
HPH-Trust – Kim Eng
2012 DPU Spot-on; Yields Still Attractive
4Q results in-line, 2H2012 DPU as promised. Hutchison Port Holdings Trust (HPHT) reported 4Q results that were in line with our forecasts as FY2012 EBITDA came in at 2% above our estimates. As expected, 2H2012 DPU of HK27.19 cts /share was declared, bringing FY2012 DPU to HK51.24 cts, exactly in line with IPO prospectus projections. Although FY2013 will have a market-expected dip in DPU, HPHT remains a solid yield play (~8% p.a.) when put in perspective with S-REITs which currently trade closer to ~5% p.a. Reiterate BUY.
Deferred Capex again a hot potato. Questions were once again raised about the sustainability of FY2012 DPU levels going forward due to the fact that distributions were only achieved this year through a deferral of capex. Management stated that no further deferral of capex would be planned in 2013, and barring an extremely positive business environment, FY2013 DPU would come in at lower levels – something which is already expected by the market.
Volumes strong, HK leads the way. FY2012 volumes posted a credible 5% growth YoY: HK leading the way with a 5.4% YoY increase and Yantian posting a 3.9% YoY increase.
Outlook tentative, but more positive signs now. Management sounded more optimistic about the US and Chinese economies although this will be mitigated by the uncertain European situation. They also stated that the trend of an increasing proportion of megavessels will benefit HPHT’s ports given their natural deep water channels and scale.
Don’t miss the forest for the trees, reiterate BUY. We leave our forecasts largely unchanged, as we introduce our FY2015 estimates. As the market has already priced in FY2013’s weaker DPU, we advise investors not to miss out any further on a stock with sustainable yields of 7.6-8.3% p.a. Reiterate BUY, with DDM-based Target Price of USD0.93 implying a 20% total return including distributions.