Author: kktan

KepREIT – CIMB

Divest to invest

KREIT has just announced that Prudential Tower will be divested for S$512m, or 6.3% above its book value. While the price is attractive and the divestment could pave the way for KREIT’s potential acquisition of MBFC Tower 3, we estimate that income support may be required to make any such acquisition yield-accretive. We slightly lower our DPU estimates and DDM-based (discount rate 8.5%) target price after adjusting for the divestment. We

maintain our Hold rating while awaiting more news on the acquisition.

What Happened

KREIT has entered into an agreement with a JV under KOP for the divestment of its 92.8% stake in Prudential Tower for S$512m. Completion of the sale is expected on 26 Sep 14.

What We Think

Attractive divestment price. The price of S$2,288 psf is 6.3% above book value, which implies that Prudential Tower will be sold at a low NPI yield of 2.3% (based on FY13 NPI and 100% occupancy), an attractive divestment price, in our view. KREIT is expected to book a net divestment gain of S$9.0m, which could pave the way for its acquisition of MBFC Tower 3. Although Prudential Tower accounts for 8.4% of KREIT’s FY13 NPI, interest savings is expected to mitigated the net drop in DPU by 3.4% and 1.6% in FY14/15 respectively.

Potential acquisition of MBFC Tower 3. Although no details have been divulged, our estimation suggests that if MBFC Tower 3 is acquired at S$2,555 psf (similar to what DBS paid last year for 30% of the tower), it can potentially add 0.9% to KREIT’s DPU yield, if: i) rental rates are supported at S$11 psf/month; and ii) 80% of the remaining S$651m (valuation of Tower 3 at S$1,150m minus S$499m) is financed through debt at an interest rate of 2.15%; resulting in a gearing of 44.2%. Having said that since S$2,555 was paid before the upturn of the office market, the income support can potentially be higher if the acquisition is executed at a higher price. The attractiveness of this potential acquisition rests largely on KREIT’s ability to lift passing rents for the property to the level of income support; considering that DBS is also the anchor tenant of the property.

What You Should Do

Continue to Hold at a slightly lower target price of S$1.21, while we await for more clarity on the potential acquisition.

kktan May 19, 2014 KepREIT Comments Off

OUE H-Trust – DBSV

Saved by the bell-y!

DPU of 1.68Scts comprises 25% of FY14F – in line
Higher F&B revenue offsets lower RevPAR
Maintain BUY and S$0.95 TP

Highlights

Results in line. OUE HT reported 1Q14 revenue of S$29m (+1% vs IPO forecast), NPI of S$26m (+3%) and distributable income of S$22m (+4%). The higher revenue and NPI were attributable to better performance of the hotel component, as well as savings in property expenses from the Mandarin Gallery, with NPI margins for the mall rising slightly to 76% from 75%. DPU of 1.68Scts was 4.3% higher than forecast, with the additional boost derived from lower trust expenses.

Our View

Shift to corporate segment led to lower RevPAR but higher F&B contribution. 1Q14 RevPAR of S$248 was 5% lower than FY14 estimate of S$257, a result of lower number of Indonesian guests due to the April election and this contributed to a decline in the proportion of transient guests. This was mitigated in part by higher demand from the corporate and wholesale segment, especially during the February Air Show. The hotel’s strategy to target corporate demand has met with some success in terms of achieving better hotel occupancies and higher F&B revenue as a result of more corporate meetings within the hotel. Looking ahead, we expect to see a dip in transient guests due to competition from Traders Hotel which will open later this year. We are confident however, that the Manager will be able to sustain higher corporate demand given the robust MICE calendar for the rest of 2014.

Renewing retail leases a key risk. Although only 9% of retail leases by gross revenue are coming up for renewal in FY14, 88% of leases will expire over FY15/16. While occupancy cost remains stable at c.20%, the key challenge for the Manager would be to balance tenant retention with refreshing trade mix, to maintain its position as a niche mall within the Orchard Road area.

Recommendation

Maintain BUY, TP S$0.95. OUEHT currently offers investors yields of 7.8%-8.1%, which is one of the highest among the hospitality SREITs. We like the stock for its high fixed income component (70% p.a.), which provides a stable minimum yield of 4.4-4.6% while having room for upside. We maintain BUY, TP S$0.95.

kktan May 7, 2014 OUE H-Trust Comments Off

LMIR – OCBC

Another hit from weaker IDR

1Q14 DPU down 23.6% YoY
Future distribution likely to stabilize
Stronger financial position

1Q14 results missed expectations

Lippo Malls Indonesia Retail Trust (LMIR Trust) reported a dismal set of 1Q14 results, with gross revenue falling 14.5% YoY to S$33.7m and NPI down 16.6% YoY to S$31.1m. The soft performance was mainly due to the expiry of rental guarantee income from Pluit Village and a 15.8% depreciation of IDR against SGD. DPU for the quarter

slipped 23.6% to 0.68 S cents, further dragged down by higher finance and other costs. This is below market expectations, given that the quarterly distribution only met 18.7%/21.3% of our/consensus FY14 DPU forecasts. Nevertheless, on a sequential basis, DPU represents a 21.4% improvement, aided by hedging and capital management efforts by LMIR Trust.

Fundamentals still sound

We understand that the currency hedges in place previously were only effective for ~15%-16% of the income. However, over 90% of the income is now covered with the new hedges, which should provide greater stability to LMIR Trust’s distribution going forward. Underlying portfolio performance, we note, has been encouraging thus far, with gross rental income in IDR terms growing 6.3% YoY and portfolio improving 1.8ppt YoY to 95.6% (4Q13: 95.0%). While there was a jump in property operating expenses (+46.2% YoY in IDR terms), we note that this was due to a change in the recognition of parking income (LMIR Trust now operates the mall car parks in-house rather than outsourcing to third-party). In addition, average rental reversion of 9.4% was achieved during the quarter.

Maintain HOLD

Over the quarter, LMIR Trust also repaid its S$147.5m term loan. As a result, gearing ratio improved from 34.3% registered in 4Q13 to 26.7%, with no refinancing needs until Jul 2015. With the stronger financial position, management said it is well positioned for future growth. We note that LMIR Trust is currently exploring at least one investment opportunity, and may potentially conclude a deal this year. However, pending any material development, we lower our fair value slightly from S$0.39 to S$0.37 to account for the weak results. Maintain HOLD.

kktan May 7, 2014 LMIR Comments Off

OUE H-Trust – CIMB

Higher F&B revenue more than offsets lower RevPAR

OUEHT’s 1Q14 DPU was in line with expectations, at 24% of our full-year forecast and 4.3% above its IPO forecast. The better performance was due to higher F&B revenue from increased corporate meetings and banquet sales. The higher F&B revenue more than offset the lower 1Q14 RevPAR at S$248 (vs. IPO forecast of S$257). Retail rental income grew 8.5% yoy with higher occupancy and stable passing rent of S$23.60 per sq ft per month. OUEHT has operational NPI yield of 6% and FY14-15 dividend yields of 8%, the highest among its hospitality peers. We continue to view OUEHT as a more stable hospitality REIT and maintain our Add rating and DDM-based target price (discount rate: 7.9%.)

Higher F&B revenue more than offsets lower RevPAR

The higher F&B revenue was attributed to the increase in corporate meetings held and banquet sales. Management aims to increase the number of corporate guests in order to boost revenue. The proportion of corporate guests increased from 23-24% of total guests in 2013 to 28% in 1Q14.

1Q RevPAR of S$248 was flat qoq but fell 1.2% yoy, mainly due to the lower room inventory available due to ongoing renovation and lower number of Indonesian guests prior to the parliamentary election period in Apr. Excluding the lower inventory impact, RevPAR would be S$252 in 1Q14.

MG’s NPI rose 8.5% yoy due to higher occupancy and stable rent.

Continue to view OUEHT as a more stable hospitality play

Given that c.70% of FY14 revenue is fixed from retail rent and fixed rent from the hotel master lease, we continue to view OUEHT as a more stable hospitality play than its peers. Additionally, its capital structure is stable with gearing of 32%, 100% of debt fixed and no refinancing requirements until Jul 2016.

Maintain Add rating

OUEHT’s FY14-15 dividend yields of 8.0-8.1% are the highest among its hospitality peers (average of 7.1-7.3%). Given its stable structure and high-quality assets, we believe that there is further room for OUEHT to re-rate. We maintain our Add rating and target price of S$0.96.

kktan May 6, 2014 OUE H-Trust Comments Off

OUE H-Trust – OCBC

Bolstered by hotel revenue

1Q14 DPS above view
RevPAR lower at S$248
Total 64 guest rooms renovated

1Q14 results exceeded expectations

OUE Hospitality Trust’s (OUEHT) 1Q14 gross revenue and NPI came in 1.4% and 2.7% higher than its respective prospectus forecasts at S$28.7m and S$25.6m. The stronger topline, we note, was due to higher master lease revenue from Mandarin Orchard Singapore (MOS). While Mandarin Gallery’s effective gross rent of S$23.6 psf pm (S$23.69 in prior period) was in line with forecast, the mall benefited from lower utilities and marketing expenses, thus leading to stronger NPI growth. Coupled with lower trust expenses, DPS registered 1.68 S cents, 4.3% higher than forecast. This also exceeded our expectation, as 1Q14 distribution already formed 26.5% of FY14 DPS projection (consensus: 25.1%).

Better performance due to higher F&B sales

We understand that OUEHT’s move to increase the hotel room revenue from corporate guests segment had resulted in an increase in the number of corporate meetings held at MOS, thus contributing to higher F&B sales. In addition, F&B revenue was boosted by increased banquet sales. Expectedly, MOS also enjoyed strong occupancy and room rates in Feb, thanks to the Singapore Airshow 2014. However, 1Q14 RevPAR of S$248 fell short of its prospectus forecast of S$257 due to lower revenue from transient guests segment, though partially cushioned by higher demand from corporate and wholesale segments. Compared to pro forma 1Q13 RevPAR of S$251, we note that RevPAR was slightly down by 1.2% due to lower room inventory as a result of ongoing renovation. Excluding this impact, 1Q14 RevPAR would have been higher at S$252.