Author: tfwee
Suntec – OCBC
Valuations are not compelling
Results are in line. Suntec REIT reported 2Q07 revenue of S$46.6m; +8% YoY and +2% QoQ. Distributable income was equally strong at S$28.0m; +19% YoY and +4% QoQ. At the DPU level, growth was more moderate at +9% YoY and +4% QoQ to 1.965 cents. Growth was mainly due to the increase in office revenue at Suntec City and Park Mall offices as well as the newly acquired strata space from Suntec City and good cost control. While property expenses rose 2%, this was much lower than the rate of increase in revenue and this explains the stronger bottom-line performance. Cost to income ratio fell from 26% (2Q06) to 24% in 2Q07. The results are in line with our estimates.
Outlook remains positive. Suntec continues to benefit from the buoyant office/retail market. Over the period, its office portfolio achieved an occupancy rate of 99.2% (Suntec at 99.3% and Park Mall at 98.1%). Going forward, a substantial portion of its space is coming up for renewal and this should boost organic growth over the next 2 years.
Reinstatement of acquisition fees to manager. In Aug 2005, Suntec’s manager ARA Trust Management (ARA) waived its acquisition fees entitlement to show its commitment to the long term interest of unitholders. In Feb 2007, ARA announced that it will be reinstating the 1% fees for new acquisitions. In terms of impact to unitholders, we see this additional cost as marginal and should not have any meaningful effect on the accretion assessment of any new purchases. Since Dec 06, Suntec has bought about 30,172 sf of strata space at Suntec Office Towers at an average cost of $1,349 psf or a total of S$40.7m. We do not see any funding issue, as Suntec’s earlier placement raised about S$177m. We estimate over 1.0 m sf of strata space not owned by Suntec, but it is difficult to assess whether Suntec will be able to acquire the remaining space as ownership is very fragmented.
Maintain HOLD. Suntec is trading close to our fair value of S$1.82 (based on asset size of S$4.5bn versus current asset size of S$3.9bn) and with its trading yield at about 4% and with no acquisition pipeline, the investment case for Suntec is not compelling. We thus maintain our HOLD rating on Suntec.
MapleTree – CIMB
Reaching fair value
• 1Q07 in line. 1Q07 distributable income of S$15m (+84% yoy) represents 20% of our full-year forecast and 23% of consensus’s. MLT’s 1Q is traditionally the weakest and we expect earnings to step up over the next three quarters to meet market and our targets for this year.
• Rental revenue more than doubled to S$29m, underpinned by the acquisition of 25 new properties in the last 12 months. MLT’s current S$1.5bn portfolio is over twice its size a year ago. There are now 13 announced acquisitions worth S$467m pending completion, which should take MLT’s portfolio to S$2bn. As such, we are confident that our S$2.4bn target for end-2007 can be met.
• Sustained high occupancy. Overall occupancy stood at nearly 100% at the end of 1Q07. MLT has secured a new tenant for 1,000 sf of space at TIC Tech Centre (NLA 30,758 sq m, third-largest asset by revenue contribution), taking the property to full occupancy in the coming quarter. A three-storey extension with 6,285 sq m of space will be added to TIC Tech Centre. EBITDA yield for the additional space is projected at 8.1%, when the enhancement work is completed in Oct 07.
• Overseas properties from sponsor. Two overseas properties developed by sponsor Mapletree, Lingang Free Port (S$39m, GFA 46,500 sq m) in China and the Vietnam Singapore Industrial Park (VSIP1, GFA 23,600 sq m), have been completed early this year. Three out of five units at VSIP1 have been leased and we believe this property could be injected into MLT as early as this year. It was also reported recently that MLT could be buying its first assets in South Korea and India very soon. As competition for assets on the home turf intensifies, MLT’s capacity for regional expansion should give it an advantage.
• Maintain Neutral. While our FY07-09 DPU forecasts have been maintained, our DDM target price has been raised from S$1.32 to S$1.43 to reflect stronger projected DPU growth for FY10 (cost of equity 6.5%, implied CY07 yield of 4%). With a projected DPU CAGR of 12% for the next four years, MLT remains one of the fastest-growing REITs in Singapore. Above-average forward yields of 4.3-5.3% should provide ample support for the share price.
Cambridge – Phillip
Acquisitions Driven Growth
1Q07 Results. 1Q07 net income available for distribution was 8.8% higher than prospectus’s forecast, giving a DPU of 1.43 cts. Annualised DPU of 5.82 cts was 13.6% higher than the forecasted DPU of 5.12 cts. 1Q07 DPU increased slightly by 0.8% QoQ, mainly contributed by the 2 light-industrial properties acquired for S$91.0m during the quarter. The ex-date of the distribution of 1.43 cts per unit is on 30 Apr 07. This represents an annualized current yield of 6.7%.
CIT’s investment properties under management increased to 29 properties, valued at S$622.0m with 475,374 sqm of NLA. As of 31st Mar 07, portfolio occupancy remained 100% with a weighted average remaining lease term at 7.1 years. The weighted average land lease of CIT’s properties portfolio (excluding freehold property) is 41 years. S$58.3m worth of options agreement have been signed, in addition to S$115m of Memorandum of Understanding (MOU) Agreements.
Capital Management. 65.0% of the outstanding borrowings are fixed, with 0.32 years to expiry. This is positive for CIT as interest rate has been decreasing. The bridging loan facility of S$400.0m has been replaced by a Variable Funding Note (VFN) structure of S$390.0m and an overdraft facility of S$10.0m. As of 31st Mar 07, total loan under VFN is S$281.7m, representing a gearing ratio of 44.7%.
Valuation. Using Dividend Discount Model (DDM), we increase our derived fair value to S$0.99. This translates to a 6.0% yield and a price to net asset value of 1.48x for FY07F. We conservatively assumed S$500m worth of acquistions till FY08F. These acquisitions are assumed to be funded by S$200m worth of equity placement and 300m worth of debt, working out to an optimal gearing of 45.3% after acquistions. We maintain Buy with a 17% return.
CCT – BT
Q1 distributable income at CCT jumps 90%
Retail space at Raffles City to be expanded by 12%
CAPITACOMMERCIAL Trust (CCT) yesterday reported a 90 per cent year-on-year jump in Q1 distributable income to $29.2 million as contributions kicked in from its acquisition of Raffles City on Sept 1 last year. Distributable income for Q1 ended March 31, 2007 was also 10.6 per cent above the trust’s own forecast.
And with more than 70 per cent of its office leases up for renewal from this year to 2009, CCT is poised to enjoy strong upside from rental reversions.
‘Over the next two years, this rental growth and the repositioning of Raffles City will contribute significantly to CCT’s income,’ said David Tan, chief executive of CapitaCommercial Trust Management Ltd (CCTML). ‘The market outlook is positive and we are confident of delivering strong performance this year.’
CCT also announced yesterday the first phase of refurbishment work at Raffles City Shopping Centre, which will cost $55.8 million and add 41,000 sq ft of net lettable retail space – a 12 per cent boost to the existing 352,088 sq ft.
Work is expected to start this quarter and finish by Q4 this year. The refurbishment is projected to achieve incremental annual net property income of $7 million, reflecting a 12.5 per cent return on an ungeared basis. The trust said it has in-principle approval from the Urban Redevelopment Authority to decant about 65,000 sq ft of gross floor area from mechanical and equipment use to new retail use.
The renovation project includes construction of a three-storey island podium in the Level 1 atrium, expansion of The Marketplace in Basement 1 and the reconfiguration and extension of the lease lines of some shops on levels 1 and 2. Levels 1 and 2 of the island podium will be designated for retail use and the third level will be a new elevated atrium for hosting events and promotions. ‘A new three-storey-high water feature integrated into the design of the island podium will serve as an iconic focal point of Raffles City,’ CCTML said.
The retail net lettable area of The Marketplace in Basement 1 will be enlarged by 26,412 sq ft or 30 per cent to 115,980 sq ft. Part of the Basement 1 car park will be converted to retail space to facilitate this. As well, a new car ramp will be built, linking Basements 1 and 3 to enhance vehicle traffic flow.
Besides a 60 per cent stake in the Raffles City office, retail and hotel complex, CCT owns office buildings here including Capital Tower, 6 Battery Road and HSBC Building, a 30 per cent stake in Malaysia-listed Quill Capita Trust and a 7.4 per cent interest in a private property trust, Malaysia Commercial Development Fund.
CCT also effectively owns Wisma Technip office tower in Kuala Lumpur through full control of junior bonds issued in connection with the building’s asset securitisation.
CCT’s Q1 distributable income of $29.2 million works out to a distribution per unit of 2.11 cents, up 22.7 per cent from 1.72 cents for Q1 last year and a 9.9 per cent outperformance on CCTML’s forecast DPU of 1.92 cents based on information in its August 15, 2006 circular.
The latest 2.11 cent DPU for Q1 2007 works out to an annualised payout of 8.56 cents, which reflects a distribution yield of 3.16 per cent based on CCT’s closing price yesterday of $2.71.
CCT’s Q1 2007 gross revenue of almost $56.7 million was a 4.8 per cent improvement on its forecast. This was due mainly to increased rental income, car park income and other income, but was partially offset by lower rental income from Capital Tower due to reconfiguration works.
The trust also booked a $4.5 million loss from the re-measurement of fair values of interest rate swaps in Q1, against a $2.9 million profit in the year-ago period. For full-year 2007, CCTML said it expects to surpass the 7.60 cent DPU reflected in its August 2006 circular.
CCT – CIMB
Decent start to the year
• 1Q07 within expectations. 1Q07 DPU of 2.1cts represents 22% of our full-year forecast of 9.5cts and 24% of consensus’s 8.9cts. We have assumed that CCT’s portfolio will grow by 15% this year, in line with the trust’s target to reach S$6bn by end-2009 from the current S$3.8bn. Assuming a constant portfolio size, 1Q07 gross rental revenue would have met 24% of our full-year forecast.
• Gross rental revenue surged 95%, largely because of the consolidation of the 60% stake in Raffles City that CCT acquired in Sep 06. Excluding Raffles City, gross rental revenue would still have climbed 13% yoy. This was chiefly on account of strong rental growth at Six Battery Road, higher occupancy at Bugis Village, and contributions from Golden Shoe Car Park and Market Street Car Park, following the completion of asset enhancement work there. Overall portfolio occupancy remained technically full at 99%.
• Strong office rental reversions to continue. Asking rents at Six Battery Road reached S$16 psf per month in April, a 23% jump from the start of this year. About 10% of the leases in the prime office building are up for renewal this year. Similarly at Raffles City, the asking rent is up 15% from the beginning of this year to S$11.50 psf per month and 29% of the leases are due for renewal this year.
• Asset enhancement at Raffles City kicks off. About 41,000 sf of retail NLA (+12%) will be added during the first phase. Construction is scheduled to start this quarter and end by year-end. It was announced previously that the entire asset enhancement package would include the addition of 150,000 sf in NLA and a direct link to the new Esplanade MRT station nearby, which should be ready by 2009/2010. We expect CCT to announce the remaining phases of Raffles City’s asset enhancement in the next 12-18 months.
• Maintain Outperform. Our DPU forecasts remain intact and there is no change to our DDM target price of S$3.00 (cost of equity 5%, implied CY07 yield of 3.2%). Potential catalysts in the next 12-18 months include the announcements of the remaining phases of Raffles City’s asset enhancement, CCT’s move into China and possibly the trust’s maiden development project. Based on CCT’s latest asset size of S$3.8bn, CCT can undertake up to S$380m worth of projects.