Author: tfwee
StarHill Gbl – DBS
Earnings growth from David Jones
At a Glance
• DPU of 0.97 Scts for 4Q09
• Retail income to support weakening office revenue
• Maintain Buy, TP $0.66
Comment on Results
DPU of 0.97 Scts. Gross revenues and net property income grew by1.5% and 3.2% to S$34.3m and S$26.8m respectively. Growth was largely contributed from stronger retail revenues from its Singapore and China properties, offset by weaker performance at its office space. Distributable income came in at $19.1m, which is a 5.5% yoy increase, translating to a DPU of 0.97 Scts. The group also wrote their book up slightly by S$25m or 1.4% – NAV per unit stands at S$0.82.
Retail portfolio to offset weakening office space. SGReit’s office portfolio is expected to face downward pressure on rents from 2010 as negative rental reversions starts to kick in. The group expects to renew a total of total of 47.2% of its office NLA over 2010-11. Current rents are ranging between $7-9psf/mth compared to the expiring levels of c$10psf. The drag is likely to be offset by income from its retail portfolio and new contributions from the David Jones property in Australia. Retail rents are expected to be underpinned by the pick up in retail sales on the back of an improving economy, anticipated increase in tourist arrivals and absence of new supply (in view of the strong absorption of the new stock). Income from the acquisition of the David Jones asset should be felt from 1Q10 with the recent completion of transaction.
Recommendation
We maintain our Buy call with TP at $0.66. SGReit remains one of the major beneficiaries of the improved tourism outlook with the upcoming opening of the 2 IRs and is well-located malls in the heart of the Orchard Rd shopping belt. The stock is offering FY10- 11 DPU yield of 7.2-7.4% and 0.64x P/bk NAV.
CDL H-Trust – DBS
Adding 1,139 keys to portfolio
• Acquiring an Australian portfolio at a total cost of A$187.2m (or A$154k per key)
• Initial yield of 7.9% attractive vs implied 5% yield
• Reiterate BUY, TP adjusted to S$2.11, offering total return of 27%
Growing keys by 1,139. CDL Hospitality Trust (CDL HT) announces the acquisition of a portfolio of 5 freehold Australian hotels comprising 1,138 rooms for A$187.2m (S$154k per room). The portfolio will be operated by Accor SA for a period of 11.3 years on a base + variable rent structure, offering strong and steady incremental growth. The base rent is well protected by strong underlying cashflows – rent payable is 60% of the underlying EBITDA of the portfolio.
Accretive at 7.9%. The deal is accretive as the initial yield of the properties is 7.9% and compares favorably to the implied trading yield of 5%. When completed, CDL HT’s total portfolio value will increase by 15.7% to S$1.7bn. The deal is expected to be 100% funded by debt at an assumed all-in-cost of 4%. DPU is expected to spike up 6-9% to 11.4 Scts (FY10F) and 12.2 Scts (FY11F).
Maintain BUY, TP $2.11. We remain positive on this development given the strong accretion to earnings and high-income protection that the acquisition offers to the trust. Based on our estimates, the fixed income portion of the trust will increase to c4.0Scts per unit (assuming nil variable income), limiting downside to earnings. Maintain BUY
CDL H-Trust – CIMB
Down Under acquisition
Acquires Australian portfolio for S$221m
Upgrade to Outperform from Underperform; target price raised to S$2.01 (from S$1.68). The manager of CDLHT has announced the acquisition of five Australian hotels for a purchase consideration of S$221m (A$175m) from Tourism Asset Holding. To be fully funded with debt, the portfolio will be leased and managed by The Accor Group at a net property yield of 8.4%. Our DPU estimates rise by 5-10% for FY10-12 after accounting for this acquisition. Accordingly, our DDM target price rises to S$2.01 (discount rate 8.7%) from S$1.68. CDLHT offers a prospected total return of 21% from a forward yield of 6.4% and projected price upside of 14%. We believe this is a convincing acquisition with potentially strong accretion to distributable income, good REVPAR upside, and a reliable tenant-cum-operator. We are impressed with the
manager’s ability to acquire at distress pricing and believe there could be more acquisitions this year. Upgrade to Outperform from Underperform.
Hotels in Brisbane and Perth CBDs. The purchase consists of three Brisbane and two Perth hotels: Novotel Brisbane, Mercure Brisbane, Ibis Brisbane, Mercure Perth and Ibis Perth. The five freehold properties have 1,139 rooms in total. They are 3.5- to 4.5-star hotels located in the Central Business Districts of both cities, well positioned to capture both business and leisure travellers. At a purchase price of A$175m (S$220.9m), price per key is about A$154,000, or a 66% discount to replacement cost.
Master lessee structure; operated by Accor. The portfolio will be leased and operated on a master lease structure by The Accor Group, an international hotel operator which operates about 4,000 hotels in 92 cities with over 470,000 rooms. The lease period is long at 11.3 years, expiring in 2021. Additionally, the lessee’s obligations are guaranteed by Accor SA, a BBB-rated entity by Standard & Poor’s, for the entire duration of the leases.
7.8% yields guaranteed. The rent to be paid to CDLHT consists of a guaranteed base rent of A$13.7m, and a variable component that is 10% of net operating profit in excess of the base rent. Based on FY09 revenue, the variable component is estimated at A$1m. This gives CDLHT an expected annual rental yield of 8.4%, of which the guaranteed base rental yield is 7.8%. Under a triple net lease arrangement, the lessee will bear property tax, insurance and maintenance costs. Tax leakage from Australian net income is estimated at 3%.
Hotel demand in Brisbane and Perth underpinned by tourism and infrastructure growth. Hotel demand in Brisbane and Perth looks set to grow over the medium term. In Brisbane, growth should be underpinned by limited room supply, a thriving tourism sector, a strong resource sector, and the government’s commitment to infrastructure spending. Fundamentals are equally strong in Perth. As the business hub for Western Australia, and a key global supplier of iron ore, crude oil and LNG, Perth’s hospitality sector is set to benefit from large private and public infrastructure spending which will include the A$43bn Gorgon project, one of the largest resource projects in Australia expected to create up to 10,000 jobs when construction starts in 2010. Projected REVPAR growth is 5% for Brisbane and 3.6% for Perth, below the annual REVPAR CAGRs of 8% (Brisbane) and 13.5% (Perth) respectively.
Fixed rent component of portfolio rises to 56% from 50%. In our opinion, the risk profile of CDLHT is still stable, as the addition of its Australian portfolio would increase the fixed rent component of CDLHT to 56% from 50%.
Funding 100% with debt, asset leverage rises to 30%. Management intends to fund the acquisition with debt, which would be 50% in A$ and 50% in S$. The REIT has in place a short-term multi-currency acquisition facility to complete this acquisition. Blended cost of debt for this facility is estimated at 5%. However, management expects to replace this with a longer-term and lower-cost facility in 2010. Options include an MTN programme put in place earlier, and convertible bonds. With this acquisition, asset leverage for CDLHT will rise from 19% to about 30%, way below the regulatory limit of 60% and still comfortable.
Valuation and recommendation
Strong underlying cash flows. We believe that the tenant Accor will be able to support rent to CDLHT given that the portfolio is supported by strong operating cash flows: EBITDA after furniture fixtures and equipment (FF&E) yield is 13.8%, significantly higher than the 8.4% projected rental yield accruing to CDLHT. Furthermore, rents to CDLHT make up 60% of the tenant’s EBITDA after deducting operator fees and provisions for FF&E.
Upgrade to Outperform from Underperform; target price raised to S$2.01 (from S$1.68). After accounting for this acquisition, our DPU estimates rise by 5-10% for FY10-12. Our DDM-derived target price rises to S$2.01 from S$1.68 (discount rate 8.7%). CDLHT offers a prospected total return of 21% from a forward yield of 6.4% and projected price upside of 14%. We believe this is a convincing acquisition with strong accretion to distributable income, good REVPAR upside, and a reliable tenantcum- operator. We are impressed with the manager’s ability to acquire at distress pricing and believe there could be more acquisitions this year. Upgrade to Outperform from Underperform.
StarHill Gbl – BT
Starhill’s Q4 DPU up 5.4%
STARHILL Global Real Estate Investment Trust posted a 5.5 per cent increase in income available for distribution to $19.1 million for its fourth quarter ended Dec 31, 2009, from $18.1 million a year ago.
Income to be distributed rose 5.6 per cent to $18.8 million. An amount of $0.3 million of income available for distribution for the quarter had been retained to satisfy legal reserve requirements in China.
Distribution per unit (DPU) rose 5.4 per cent to 0.97 cents from Q4 2008’s restated 0.92 cents. Q4 2008’s DPU was restated to take account of rights units.
In August last year, Starhill, which owns stakes in Wisma Atria and Ngee Ann City, had completed a rights issue which had raised net proceeds of $326.1 million.
For the year, net income available for distribution rose 8.7 per cent to $75.5 million.
After retaining about $2 million to satisfy the legal reserve requirements in China and for working capital and capital expenditure purposes, net income to be distributed stood at $73.5 million, up 7.2 per cent from $68.6 million in 2008.
DPU for 2009 stood at 3.8 cents, up 6.1 per cent from 2008’s 3.58 cents, which again took into account the rights issue.
Net property income for the quarter rose 3.2 per cent year-on-year to $26.8 million, driven by increased revenue from new leases and lower property tax expenses.
For the year, the group posted net property income of $106.9 million, an 11.5 per cent increase from $95.9 million.
As at Dec 31, 2009, the trust’s gearing ratio was 26.9 per cent. The manager of the trust is in ‘active discussions’ with its banks to finalise terms for the refinancing of $570 million of debt that falls due in September.
The group’s outlook for the year is a cheery one.
‘Business sentiment has improved significantly over the last quarter. The completion of our acquisition of the David Jones Building in Perth earlier this month is timely, as the property will start contributing immediately to Starhill Global Reit’s FY2010 revenue and net property income,’ said Francis Yeoh, executive chairman of YTL Pacific Star.
‘Visitorship to our Singapore malls have continued to improve with the added buzz arising from new malls and the rejuvenation of Orchard Road and we expect this to increase in tandem with tourist arrivals when the integrated resorts open.’
Its retail assets in Singapore are expected to mitigate the effects of retail rents and occupancy rates in Japan that might still be reeling from economic weakness. Starhill rose 1.5 cents to close at $0.545 yesterday.
FCOT – DBS
Lifted by Alexandra Technopark
At a Glance
• Stable 1Q10 pulled up by Alexandra Technopark
• Earnings stable with 86.5% of income secured for FY10
• Maintain HOLD, TP S$0.14
Comment on Results
Results posted no surprises. Gross revenue and net property income was 19.1% and 26.6% higher at S$29.6m and S$23.5m respectively due to stronger AUD vs S$ and a full quarter’s contribution from Alexandra Technopark. The increase was partially offset by loss of income at Central Park and lower occupancies at Cosmo Plaza. Total distributable income was 31% higher at S$12.1m of which S$4.7m will be payable to its CPPU holders. Distributable income amounted to S$7.4m, which translated to DPU of 0.24 Scts.
Looking within for growth. Leases expiring in FY10F, which accounted for 13.5% of topline, are largely from Keypoint and Central Park. For this year, management will embark on AEI activities for Keypoint to boost occupancies and tenant retention, further strengthening its position to capitalize on its increased accessibility with the completion of Circle line Nicholl Highway MRT Station. In addition, the manager continues to look to divest Cosmo Plaza, which reported a further S$3.9m devaluation to S$50.1m.
Recommendation
Maintain HOLD, TP S$0.14 maintained. We believe that it has yet to fully complete its portfolio restructuring with the proposed sale of its Japanese assets. Coupled with a weak office outlook, near term re-rating catalysts appear lacking. As such, we maintain our HOLD call and no change to our TP of S$0.14.