Month: February 2013
CRCT – OCBC
ADDITIONAL AEI FOR MINZHONGLEYUAN
- 4Q12 results in line
- Fast-tracked AEI at MZLY
- Good LT outlook
NPI rose 6% YoY
CRCT’s 4Q12 results were generally in line with our expectations. Gross revenue climbed by 3.9% YoY to S$37.9m and net property income rose 6.0% YoY to S$24.2m. In RMB terms, gross revenue increased by 7.5% YoY to RMB195.4m and NPI expanded 9.9% YoY to RMB124.8m. Excluding Minzhongleyuan (MZLY), which is undergoing AEI, NPI grew 11.7% YoY to RMB117.9m. The portfolio was valued at RMB7.6b, up 4.7% from Jun 2012. According to management, capitalisation rates compressed by ~25 basis points.
CapitaMall Minzhongleyuan
The AEI at MZLY is being fast-tracked, with temporary closure of the mall from Jul 2013 to 2Q14, as opposed to completion by end 2014 as initially intended. Additional works planned include replacing the main atrium roof (which currently leaks during the rainy season), accentuating the facade and improving circulation with additional escalators. Tenants with frontage along Zhongshan Avenue will continue operations. Over 50% of tenants expressed leasing interest after AEI. Management estimates that FY13 DPU will be reduced by ~3% due to the accelerated AEI (assuming the other malls perform as they did in FY12). MZLY accounted for 5.3% of FY12 NPI. Estimated capital expenditure has been increased from RMB74m to RMB103m and expected return on AEI investment falls from 10.8% to 10.1%. Average rental rate of the mall is anticipated to increase ~35% versus pre-AEI.
Healthy financial position, positive LT outlook
CRCT has a good financial position, with gearing at 28.0%, and interest coverage ratio at 7.8x. The outlook for CRCT remains good in the longer-term. China’s 2012 GDP grew at 7.8% and the World Bank projects that GDP will grow by 8.4% in 2013. China has affirmed its target of doubling the country’s 2010 GDP and per capita income for residents by 2020 (7.2% p.a.).
Maintain HOLD
Increasing our longer-term growth rate assumptions, which were conservative previously, our fair value increase from S$1.56 to S$1.72 but we maintain our HOLD rating on CRCT on valuation grounds.
StarHill Global – DBSV
Riding on positive reversions
• Results in line, lifted by SG portfolio
• Positive reversions, new acquisition, Malaysia stepping up rent and some possible interest savings to drive earnings
• Maintain BUY at a higher S$0.89 TP.
Highlights
4Q12 results in line. 4Q12 gross revenues and net property income grew c.2-3% q-o-q and y-o-y. Higher income from its SG properties helps more than offset forex losses (Yen and AUD weakened by 10% and 3% respectively) and weaknesses in Chengdu performance (-13.9% y-o-y). The trust retained S$0.6m for working capital this quarter, putting YTD amount at S$1.4m. Taking that into account and netting off CPU distribution, 4Q12 DPU rose by 12% y-o-y to 1.13cts. Full-year DPU came in at 4.39ct, which is on line with our forecast. NAV rose marginally by 2% to S$0.96 as the revaluation gains for its SG and Malaysia property were eroded by forex losses. Cap rates used for SG portfolio remained steady at 5.25% and 4.25% for retail and office assets, respectively
Our View
Continue to be lifted by positive rental reversion. Wisma Atria’s retail sales growth was +23% q-o-q, 33% y-o-y, with a healthy footfall (+15% q-o-q, -2% y-o-y) post AEI work. On a full-year basis, retail sales and shopper traffic hit S$176m translating to S$115 psf of retail sales and occupancy cost of 28%. Going forward, earnings will be driven by (i) positive rental reversions for its SG properties as the gap between expiring and recent transactions narrowed. About 26% of its office leases in terms of NLA is due for renewal in 2013, and passing rent of S$8.20 psf pm is still below current signing rent of S$9.50. Meanwhile, the average monthly rent for Wisma’s retail is at S$32 psf, still below the asking rent of S$35 – $70 psf. (ii) 7% upward reversion of rent in June 2013 for its Malaysia Property (iii) an additional c.$3.8m p.a. of net income its recent Perth (Plaza Arcade) acquisition from 2Q onwards.
Interest savings and inorganic growth possible. While, 57% of its debt was up for refinancing, we understand talk is underway to refinance and break it into with smaller tranches with differing maturities. SGREIT is looking to replace them with unsecured loans which could increase the current unencumbered ratio to 78%, from 41% currently. This may potentially trigger a rerating of its MTN notes (current triple B-). Gearing remains healthy at 32%, providing the trust ample ammunition for acquisitions. We have not assumed any acquisitions but have prudently assumed 100% conversion of its CPU as these are now trading in-the-money.
Recommendation
Maintain BUY at a higher S$0.89 TP. Our TP is raised to $0.89 as we factor in the acquisition of Perth Arcade, higher reversionary rents for SG portfolio and assume conversion of CPU. Upside could come from one-off accumulated arrears in rents from Toshin’s lease and upwards rent review due in Jun13 (not factored in yet) or new acquisitions.
CDL H-Trust – DBSV
Room for growth
- 4Q12 results in line
- Challenges in operating environment in the near term
- Acquisitions to boost earnings performance; with more headroom, management remains on the hunt for more
- BUY, TP S$2.11 maintained
Highlights
4Q12 results in line. Gross revenue and NPI declined marginally by 1.4% and 0.2% y-o-y to S$38.3m and S$35.6m respectively. Performance of its Singapore hotels was flattish (excluding Studio M Hotel) to S$205/night (flat y-o-y, -1.5% qo-q) and while earnings from its Australia hotels were weaker due to the weaker AUD-S$ exchange rate. As a result, income available for distribution (after retained income) of S$ 28.1m was 0.9% lower y-o-y, translating to a DPU of 2.90 Scts ( -1.4% y-o-y).
Our View
Challenges in the near term; new competing room supply to limit significant hikes in room rates. We noted that occupancies for its Singapore portfolio remained fairly firm at 89.3% but the average daily rate was marginally lower at S$229/night (-1.3% y-o-y) The performance of its hotels was also slightly weaker due to a softer banquet business (which typically peaks in 4Q) but Novotel Clarke Quay hotel continue to be the top performer with a 11% y-o-y growth in revenues given its suite of renovated rooms. Looking ahead to 2013, management remains cautious on the near term outlook and expects the year to start off weaker with corporate bookings coming in stronger post the Chinese New Year in Feb. Looking ahead, with new incoming hotel supply over the coming quarters (4,138 rooms, +8% of current supply), we believe that further room rate hikes is likely to be limited (we are forecasting RevPAR growth of +3% in 2013).
Angsana Velavaru acquisition to boost performance; further acquisitions possible. The acquisition is expected to be soon and will contribute positively to earnings in the subsequent quarters. Gearing post acquisition remains conservative at c.29%, still below management’s comfortable level of 35%. Acquisitions are a likely feature and management remains watchful for opportunities and Japan, remains a likely target.
Recommendation
BUY maintained, TP S$2.11. Guidance for payout ratio to remain at 90% for FY13F and we have adjusted our numbers slightly to reflect this. CDREIT offers an attractive 4% CAGR in DPU over FY13-14F, with potential upside if further acquisitions are executed on. BUY, TP S$2.11. CDREIT offers a prospective 5.9-6.2% yield.