Author: tfwee
CMT – CIMB
Resilient but still expensive
• Maintain Underperform. After our last visit to some of CMT’s malls, we remain confident they can stay resilient despite competition, and our assumptions of 0-5% rental growth for 2009-11 remain realistic. Nonetheless, the impact would likely be offset by capital expenditure on Jurong Entertainment Centre as well as Atrium@Orchard, resulting in flat distribution in the next two years.
• Risks to our estimates include: 1) a poorer-than-expected performance from its centrally located malls and the hotel component in RCS; 2) higher-than-expected construction costs for upcoming asset enhancement works at Jurong Entertainment Centre and Atrium@Orchard; and 3) the creation of a higher-than-expected retail NLA for Atrium @ Orchard.
• DDM-derived target price raised to S$1.30 (from S$1.26). We use a lower discount of 9.5%, down from 9.7% earlier, from a lower risk-free rate of 4.8% applied across our REIT universe. This raises our DDM-derived target price to S$1.30 from S$1.26. Against peers in the SREIT space, CMT appears fairly expensive at 0.8x P/BV and yields of 6% vs. the sector average of 11.3%.
Cambridge – CIMB
Room to catch up
• Maintain Outperform. CREIT has a small asset size with tenant concentration risks, unlike its much larger peers, A-REIT and MLT. Nonetheless, we expect its rental income to stay visible in the medium term with all its tenants on long leaseback arrangements with built-in rent increases.
• Concerns remain but limited lease expiries over next four years. Only 30% of its master tenants are end-users of its industrial space. CREIT also has a heavy reliance on its top 10 tenants for gross revenue. Nonetheless, we take comfort that management is managing its tenants and sub-tenants much more tightly, taking steps to ensure tenant sustainability. Limited lease expiries of only 5.4% over the next four years add some certainty to occupancy sustainability.
• DDM-derived target price raised to S$0.48 (from S$0.47). We maintain our estimates but use a lower discount rate of 9.4% (from 9.6%) based on a lower riskfree rate of 4.8% applied across our REIT universe. CIT remains the cheapest industrial REIT under our coverage. P/BV has risen to 0.5x, but still lags behind the REIT sector’s 0.6x average. We believe there is room for price upside.
CLHTrust – CIMB
IR catalyst from 2010
• Maintain Outperform. Management guides that 2Q09 results could be weaker than in 1Q09. However, an increased number of conventions and events in the second half of 2009 is expected to support full-year performance. We believe that CDL-HT remains well-positioned to benefit from the tourism boost that the two integrated resorts (IR) should bring about from 2010. Chinese and Indian tour agencies are already marketing Singapore as a single tour destination (as opposed to the traditional marketing of Singapore as a stop-over destination, or lumped together with its neighbouring countries). This should have a significant impact on the length of visitors’ stay in Singapore, and hence REVPAR levels for Singapore hotels.
• Upgrading our estimates. We increase our occupancy forecast for CDL-HT’s Singapore portfolio to 82% from 80%. We also raise average room rate expectations to 3-5% growth from 5-10% declines earlier, over 2010-11. Additionally, with its last refinancing in Apr 09, CDL-HT will have no more debt due till FY12. We reduce our cost of debt assumptions to 4% from 4.5% to factor in lower-than-expected spreads obtained. We also use a lower discount rate 10.6%, down from 10.8% as we apply a lower risk-free rate of 4.8% across our universe.
• DDM-derived target price raised to S$0.99 (from S$0.68). Following the changes in our estimates, our target price rises to S$0.99. We continue to like CDL-HT for its low asset leverage of under 20%, and mid-tier portfolio, which would enable it to stay resilient despite the weak tourism outlook.
CCT – CIMB
Bleak outlook
• Maintain Underperform. CCT’s rights issue, completed in Jul 09, has strengthened its balance sheet to 31% leverage from 43%, at a price of a doubled share base. There remains large debt due for refinancing over 2010-11 while the outlook for office-sector rents remains bleak for the next three years with a large supply in the pipeline. Taking into account its pared-down debt, we estimate implied yields at 6.3%, translating into expected rents of S$5.20psf. We expect another round of asset devaluations to close the gap between implied and actual yields.
• Evidence of pick-up in leasing volumes. Recent evidence of increased leasing volumes following a sharp fall in market asking rents suggests that our earlier occupancy assumptions might have been too severe (we were expecting a fall to the last crisis levels of about 85%).
• DDM-derived target price raised to S$0.76 (from S$0.71). We now expect office occupancy to decline to 93% over 2009-11, instead of 88%. Additionally, we use a lower discount rate of 10.2% (from 10.4%) based on a lower risk-free rate of 4.8% applied across our REIT universe. Our new target price prices in three consecutive years of decline in DPU. We maintain our Underperform rating as catalysts within the three years are still lacking.
ART – CIMB
Less depressed expectations for 2010
• Guidance for 2Q09. ART guides that its 2Q09 earnings are likely to remain weak, but with a slower rate of decline compared with 1Q09. ART’s top four contributors (73% of revenue) are Vietnam, China, the Philippines and Singapore, in order of contribution. REVPAU in Vietnam and Singapore is stable, supported by a long-stay segment and improved occupancy, while the Philippines has recovered strongly and earnings are likely to supersede 2008’s. China’s REVPAU continues to decline due to a supply overhang in Beijing. We continue to expect a 13% decline in overall REVPAU for this year.
• Reviewing estimates. Although the outlook for global business travel still lacks clarity, concerted global efforts to ease the financial crisis have improved liquidity conditions, resulting in a general revival of confidence. We believe this will translate into stable global business travel in due time. As such, we revise our FY10-11 REVPAU assumptions to reflect 0-5% growth, vs. 0-15% decline previously.
• Higher DDM-derived target price of S$0.79 (from S$0.56). Our DPU forecasts for FY10-11 increase by 14-17% following changes to our assumptions. We now use a lower discount rate of 10.3% from 10.5% on a reduced risk-free rate of 4.8% which is applied across our REIT universe. Current P/BV appears attractive at 0.5x vs. SREITs’ 0.6x. Price catalysts look limited in the short term. However, due to the volatile nature of the hospitality industry, the impact of increased REVPAU on revenue when the economy turns would be felt in a much shorter span of time.