Author: tfwee
CMT – JPM
Steady as she goes
• A liquid proxy to SREITs that offers stable return. CMT, being the largest and most liquid S-REIT, should offer a total return of 11% for the next 12 months on our estimates, which compares to S-REITs
sectoral average return of about 7%. We believe that the low risk – stable return profile coupled with the potential for further DPU upgrades make CMT an appealing stock, especially for investors with a low risk appetite.
• Asset enhancement & redevelopment to drive organic growth. The trust restarted its AEIs program in 3Q09. The upcoming announcement of Jurong Entertainment Centre redevelopment and Atrium @ Orchard AEI plans, which are likely to uplift FY11E and FY12E DPU by 4-5%, would be the near-term catalyst for any potential earnings upgrades. In addition, as retail sales picks up, we could potentially see increases in GTO rents, especially from the non-discretionary tenants.
• Catch-up in relative performance. CMT has underperformed the sector by 4% since the listing of CMA, as investors rebalance their exposure according to their risk appetite. The stock is currently trading at an undemanding valuation of 1.15x historical book and 265bps yield spread to 10-year government bond. In addition, we believe that the listing of CMA has further strengthened the retail platform for the trust.
• We reiterate our Overweight rating on CMT, with a Dec-10 DDMbased price target unchanged at S$2.00/unit. Key risks to our rating and price target include worse than expected operating performance
including lower rental renewal rate and occupancy rate, or a retightening of the credit market.
A-REIT – JPM
Lack of catalyst – downgrade to Neutral
• We downgrade AREIT to Neutral, with a Dec-2010 DDM based price target of S$2.05/share unchanged. The stock is currently trading at 6% premium to our current NPV and 1.3x historical book, a level that is at the historical average, and has largely priced in the recovery of the industrial sector. With the expected lack of catalyst in the next 6-12 months and hence limited upside to our numbers, we see the stock to be range bound for now and offering total return of 6% this year.
• Carrying heavier equity load. In Aug 09, A-REIT raised over S$300 million equity to fund its future growth. While management has been actively looking for potential acquisitions and built-to-suit projects, the rapidly moving market has made it difficult for the deals to be closed. Given the still uncertain outlook and volatile market, we see high risk of A-REIT carrying this heavier equity load for a prolonged period.
• Strategic shift the long-term catalyst? With the portfolio size standing at S$4.5bn today, single acquisition of industrial property is unlikely to provide much accretion. As A-REIT continues to grow in size, portfolio acquisitions and potential M&A opportunities would, in our view, increasingly become an issue of focus. In addition, a change in investment mandate could also allow A-REIT to take more advantage of sponsor Ascendas’ wide presence in the region.
• Key upside risks to our Neutral rating include a faster than expected deployment of the access capital and a reversal of investors’ risk appetite which puts greater emphasis on low risk stable return. Key downside risks include worse than expected operating fundamentals.
CDL H-Trust – JPM
Keep the faith in Integrated Resorts
• Keeping the faith. CDREIT has more than quadrupled since the trough in Mar 09, and has outperformed the FSSTI index by 110.5% in the last 12 months. While volatility for hospitality stocks tends to increase before large events such as the opening of 2 integrated resorts (IRs), we maintain our Overweight rating on CDREIT on the back of J.P. Morgan’s bullish view towards the two IRs.
• Raising our estimates. We raise our earnings estimates for FY10EFY12E by 18% as we increase our room rate forecast and expect the trust to revert to 100% dividend payout ratio. Our revised estimates assumes RevPAR for Singapore hotels at S$191/day and S$210/day for FY10E and FY11E, which compares to the peak RevPAR of S$208/day achieved in 2008.
• Earnings risk still on the upside. Given that no. of rooms per casino table for the 2IRs in Singapore is much lower than that in Malaysia and Macau, we see greater opportunity for hoteliers such as CDREIT to further increase its RevPAR. We estimate that every 10% increase in CDREIT’s RevPAR would increase our DPU estimate by 12%. In addition, the trust could utilize its lowly geared balance sheet for yield accretive acquisitions.
• We reiterate our Overweight rating on CDREIT, and raise our Dec-10 DDM based price target to S$2.00/share (S$1.85/share previously). The increase in PT is a result of an increase in earnings estimates and a reduction in LT growth forecast to 2.3%. Key risks to our rating and price target include a failure for the 2 IRS to attract visitors to Singapore and a worse than expected operating performance.