Author: tfwee
MapleTree – DBS
Sterling Results
Story: MLT posted a set of sterling 2Q08 results, with topline and NPI rising c28% yoy and c3% sequentially to $43.8m and $38.3m respectively, in line with expectations. Distributable income rose a better 7.6% qoq to $22.6m (DPU: 2.04cts), helped by lower interest expense as effective borrowing cost dipped to 2.7% from 2.9% a quarter ago. The better performance was primarily due to contributions from 18 additional properties while organic rental improvement from assets in HK and Singapore also shored up bottomline.
Point: Going forward, MLT’s regional yield plus growth strategy is still intact. While acquisition pace may moderate due to a quieter property market, this is likely offset by higher total return benchmarks set for new acquisitions. Positive rental reversions from its HK and Singapore assets and asset enhancement initiatives should also boost bottomline. Shareholders approved a 3-for-4 rights issue at $0.73 apiece to raise $607m to partially fund new purchases and pare down debt. This will lower gearing to 38%, giving it room to tap new sponsor and third party purchases. Post-rights, it has $330-$640m of debt headroom for new buys, assuming a debt/asset ratio of 45-50%.
Relevance: We remain positive on MLT’s prospects in the medium term with a strengthened balance sheet, which gives it room to tap new opportunities for growth. While short-term share price performance may be dampened by DPU dilution in 2H08 and potential overhang from the new unit issue, we believe this has been largely reflected in the share price. The stock is currently trading at 8.1-9.0% yield based on post-rights FY08 and FY09 DPU of 6.7cts and 6cts. Our adjusted price target of $1.04, assumes $550m of new acquisitions in FY09.
a-iTrust – DBS
1QFY09 results in line
Story: Ascendas India Trust (AiT)’s 1QFY09 results were within expectation. Gross revenue and net property income grew 23% and 20% y-o-y to S$28.6m and S$16m respectively. Distribution income of S$12.4m, translates into 1.65 cts DPU.
Point: Gross revenues and NPI were boosted by (i) recently completed additions; Vega at The V and Crest at ITPC, and (ii) higher portfolio occupancy of 97% from new tenant sign-ups, and (iii) higher than average rentals secured for c. 150,000 sq ft of its space. Moving forward, AiT has lined up a further 1.5m sq ft of SBA to be constructed over the next two years. Taking into account a possible delay in rental contribution from these spaces, we lowered DPU by 20.6% for FY09F to 6.9 cts and by 22.6% for FY10F to 7.6 cts. This adjustment is due to a staggered rental contribution post completion of these buildings.
DPU growth will be largely organic in the near term, with 38% of its portfolio up for renewal in FY09-10. The development potential of 2.7m sq ft of SBA, largely within a SEZ in ITPB, should support portfolio growth in the medium term. In addition, its pipeline of two ROFR with Ascendas Land Int and Ascendas India Devt Trust could be catalysts for upward earnings surprise when executed.
Relevance: Our DDM-backed price target is reduced to S$1.01 to reflect a higher risk free rate of 3.9%, 10% risk premium and lower terminal growth rate of 1%. AiT is currently trading at attractive FY09F and FY10F yields of 8.5% and 9.4% respectively, and offers 26% upside to our price target. We continue to like AiT for its quality portfolio, and its 3-pronged growth strategy of (i) proposed development pipeline, (ii) development potential of a further 2.7m sqft of SBA and (iii) 2 ROFR with its sponsor
AscottREIT – UOBKH
2QFY08: DPU up 9% yoy to 2.19 S cents; FY08 annualised yield at 8.1%
2QFY08 DPU grew 9% yoy to 2.19 S cents. With 1QFY08 DPU of 2.33 S cents, 1HFY08 DPU amounted to 4.52 S cents, or 26% yoy higher, translating into an annualised DPU yield of 8.1% vs 10-year Singapore government bond yield of 3.4%. 1HFY08 DPU accounts for 54% of our FY08 DPU forecast of 8.3 S cents. 2QFY08 revenue increased 13% yoy to S$46.0m, mainly driven by Revenue Per Available Unit (RevPAU) growth. All markets except for the Philippines registered positive revenue growth. Acquisitions contributed 5.4% and 6.8% of total revenue and gross profit respectively in 2QFY08.
Overall RevPAU increased 6% yoy to S$143 in 2QFY08, with occupancy rate at a high level of 82% on average. Of its seven markets, Singapore, Australia, Indonesia and Vietnam achieved higher RevPAU growth in 2QFY08. The Singapore and Australia markets achieved double-digit RevPAU growth in the quarter. The China market’s RevPAU was 4% lower yoy as reconfiguration projects generated smaller rooms. The Japan and Philippines markets were hit by increased competition and softening demand.
Gross margin widened to 50.6% vs 45.0% in 2QFY07, but was lower qoq (51.4% in 1QFY08). Yoy margin improvement was mostly due to RevPAU growth and the addition of high-margin rental housing properties in Japan. On a qoq basis, ART’s gross margin was affected by higher labour and utility costs.
Comfortable gearing. ART’s gearing ratio (Debt/Asset) stood at 34.5%, well below the 60% limit allowed by the Monetary Authority of Singapore (MAS) and our optimal gearing assumption of 45%. As of Jul 08, debt that will mature in FY08 amounted to S$85.5m, or 15% of total debt. Management is confident ART has more than enough committed lines to refinance the debt.
Stable outlook. Compared with hotels, the longer-term leases of ART’s portfolio (more than eight months on average) could cushion it against shortterm economic shocks. We also believe corporate travel, the key segment that ART’s service residences target, is more resilient than leisure travel. ART has guided that most markets – including Singapore, Australia, China, Indonesia and Vietnam – could see a stronger 2H08 on a yoy basis, although likely to be weaker compared with 1HFY08 amid uncertainties over inflation and financial turmoil. Japan and the Philippines are expected to continue to be affected negatively by softening demand in 2HFY08. All in all, Management expects operating performance in 2HFY08 to remain stable.
Extensive exposure to diversify currency risks. ART’s extensive exposure in seven countries helps diversify currency risks. According to ART’s estimate, Forex volatility made an impact of only 1%, or S$3m, on gross profit in 1H08. Management still likes the Vietnam market and believes the robust demand for extended stay will lead to a strong operating performance. Management also believes that, as Vietnam portfolio’s room rates are contracted in US dollars, the key risks lie in the time lag for repatriating earnings to Singapore (normally 2-3 months).
ART is a BUY; target price of S$1.57. Our valuation is based on the discounted cash flow model (WACC: 7.3%, terminal growth rate: 2.0%). With FY08 DPU yield estimated at 7.4%, ART’s valuation is very attractive given ART’s unique position as the only hospitality REIT under CapitaLand and its growth potential.
CCT – UOBKH
2Q08: Benefitting from positive rental reversion
CapitaCommercial Trust (CCT) reported gross revenue of S$74.4m in 2Q08, an increase of 25.2% yoy. Notable growth drivers were 6 Battery Road, Robinson Point and Capital Tower, where revenue contributions increased 99.3%, 35.4% and 15.5% yoy respectively. CCT benefitted from positive rental reversion with renewed and new leases committed in 1H08 at 193% higher than preceding rental rates. Net property income increased 18.6% yoy to S$51.5m while distributable income gained 23.2% yoy to S$36.1m. CCT announced DPU of 2.60 cents for 2Q08, an increase of 22.6% yoy.
CCT recognised gain of S$445.6m on revaluation of its investment properties. The higher valuation came largely from HSBC Building and 6 Battery Road, which are located within Raffles Place and its 60% stake in Raffles City. Its portfolio has expanded from S$5.7b to S$6.9b after completion of acquisition of One George Street (OGS). The stock is currently trading at a steep discount of 36.5% to NAV/share of S$3.12.
Benefiting from positive rental reversion in 2008 and 2009. Growth in rental rates has moderated as recent escalation in office rentals forced more companies to alternatives such as transitional office space and relocating support functions outside the Central Business District (CBD). Rentals for Grade A office space within Raffles Place increased a mild 1.7% qoq to S$17.82psf pm in 2Q08. Occupancy for Grade A offices dipped slightly from 99.1% in 1Q08 to 98.3% in 2Q08 (Source: Colliers). Nevertheless, CCT will benefit from positive rental reversion as leases expiring in 2009 and 2010 were contracted at rates significantly below current market rentals. For example, 49% of office space at Raffles City will expire in 2009. The current rental rate of S$5.69psf pm is way below prevailing rental of S$11.50psf pm for office space in the vicinity.
Completed financing package for One George Street. CCT utilised a myriad mix of instruments to finance the acquisition of OGS. The package comprises convertible bonds of S$370m, S$150m from its medium term note programme and 2-year term loan of S$650m. The effective interest rate for the package is 3.23% assuming all-in interest rate of 2.86% for the 2-year term loan, which has been lock in for six months, is maintained. The acquisition was completed on 11 Jul 08 and OGS will contribute to earnings from 3Q08 onwards. Gearings has increased to 35.7%, but remains at a manageable level.
CCT provides a diversified exposure to the office market in Singapore. It provides FY08 distribution yield of 5.6%, a spread of 2.2% over 10-year Singapore government bond yield at 3.4%.
ART – BT
SINGAPORE – Ascott Residence Trust (ART) on Wednesday said that its second quarter distributable income climbed 9.6 per cent to $13.3 million (US$9.83 million), from $12.1 million a year ago. Dividend per unit came to 2.19 Singapore cents, up 9.0 per cent from 2.01 cents for the same period last year.
ART said that its better performance was due to both organic growth across its portfolio, particularly in Singapore and Vietnam, and contributions from newly acquired properties over the past year. On the back of this, revenue for the second quarter rose 13.1 per cent to $46.0 million.
The trust added that the global financial turmoil triggered by the sub-prime crisis and the reduced credit supply have had some impact on the Asian hospitality industry in the first half of 2008.
‘Should these factors persist, there will be further impact on business travel patterns to the markets we operate in, although the group’s geographical diversity and extended stay business model allow it to mitigate these factors,’ the trust said.
ART will look to emerging markets such as China, Vietnam and India for acquisitions in the future, said Chong Kee Hiong, chief executive of the trust’s management team. — UMA SHANKARI, BT NEWSROOM.