Author: tfwee
Cambridge – Daiwa
Quarterly improvement in gross revenue and net-property income
What has changed?
• Cambridge announced its 3Q09 results on 27 October. Net-property income (NPI) was 1.3% above our forecast, while distribution per unit (DPU) of 1.34¢ was 9% above our forecast.
Impact
• Gross revenue increased by 1.3% QoQ and was 1.6% above our forecast. Overall occupancy improved to 99.7% (from 99.5% in the previous quarter). According to the manager, all leases expiring in 3Q09 were renewed. Rental renewal risk remains one of the lowest in the sector, with only 6.6% of leases (by gross revenue) up for renewal in 2009-12.
• The major positive variances came from lower-than-expected other trust expenses and higher-than-expected (pre-distribution) adjustments.
• We have revised up our DPU forecasts by 1.7% for FY09, 3.1% for FY10, and 2.6% for FY11 after raising our portfolio-occupancy assumption to 97.5% from 96%.
Valuation
• We have raised our six-month target price to S$0.54 (from S$0.53), based on our RNG valuation (a finite-life Gordon Growth Model), which assumes an effective portfolio cap rate of 7.5%. Cambridge trades at a 12-month forward yield of 11.1% based on our revised DPU forecasts. NAV was S$0.60 as at 30 September 2009.
Catalysts and action
• We maintain our 2 (Outperform) rating for Cambridge, as we believe its recent operating performance highlights the stability of its distributions. We believe Cambridge faces a moderate risk of equity fundraising, since the manager has guided for a long-term target gearing ratio of 30-35% compared with the latest gearing of 42.6%. However, the DPU dilution could be moderated from a successful sale of some assets above book value.
Ascott Reit – BT
SINGAPORE – Ascott Residence Trust (Ascott Reit) announced on Wednesday a distribution per unit of 1.92 cents for the third quarter ended Sept 30 2009, down 26 per cent from the same period last year but 7 per cent higher than the second quarter this year.
Third quarter income available for distribution fell 25 per cent to $11.8 million from last year but rose 7 per cent from the previous quarter.
Mr Lim Jit Poh, Ascott Residence Trust Management Limited’s Chairman said in a news release: ‘The severe challenges posed by the global downturn to the hospitality industry have eased. Our Q3 operating performance has shown further signs of stabilisation in hospitality demand.’
Mr Chong Kee Hiong, ARTML’s Chief Executive Officer added: ‘The better performance was led by revenue per available unit growth in Japan, Singapore and China of 24 per cent, 15 per cent and 7 per cent respectively in 3Q 2009 compared to 2Q 2009.’
‘To ride on the expected upturn in demand as the economy recovers, we have accelerated our asset enhancement initiatives for selected properties. We will also continue to seek yield accretive acquisitions.’
Suntec – JP Morgan
3Q09 results: Better than expected on lower financing costs
• Suntec REIT announced 3Q09 results, with DPU at S$0.0292/unit, down 2% Q/Q but 8% higher than our estimate on the back of lower financing costs (2.88% all-in costs) as a result of a higher proportion of short-term debt. Distributions YTD amounted to S$0.0816/unit, giving a 9.9% annualized yield based on yesterday’s closing price. Book value stood at S$1.95/unit with gearing of 34%. Stock will trade ex-3Q09 distribution on 2 November.
• Occupancy rate has improved, but rents still under pressure: We note that the occupancy rate for the portfolio improved on a sequential basis, with that of Suntec City Office back up at 94.8% versus 92.5% in 2Q09. Renewal rents, however, continued to fall, declining 12% Q/Q to S$7.30 psf pm. Passing rents for the trust’s retail portfolio also saw a modest decline. We retain our view that substantial negative rental reversion will start to kick in only in 2H10 and distributions are likely to bottom out only in 2012.
• Calibrating our earnings estimates: We raise our distribution estimates for 2009-2011 by 2-7% to factor in lower financing costs, especially for this year. Our Jun-10 DDM-based price target remains unchanged at S$1.00/unit, assuming an 8.5% discount rate and a 2% long-term growth rate.
• We retain our Underweight rating on Suntec: Key upside risks to our rating and price target include: 1) a potential fundraising that is likely to remove the EFR overhang; 2) incrementally more positive news flow for the sector in the near term; and 3) a quicker-thanexpected bottoming out and recovery of the rental market. Key downside risks include a worse-than-expected rental reversion cycle and a return to illiquid capital markets as we had a year ago.
Suntec – Nomura
3Q09 Results
First look
SUN’s 3Q09 DPU came in above Nomura and street expectations, on better-thanexpected portfolio performance. In particular, portfolio occupancy held up better than expected. Considering the apparent 10.2% ex-ORQ office lease roll and 8.9% retail lease roll achieved in 3Q09, we find the occupancy resilience impressive. Rents were likely cut to achieve these, but the YTD correction in rents at the Suntec City assets appears milder than we were anticipating. Forecasts, PT under review.
Rents cut to secure occupancy
Suntec – DMG
Positive rental reversion; BUY
Stable 3Q09 earnings; earnings in-line. Suntec REIT reported 3Q09 results DPU of 2.92¢ (+2.3% YoY; -1.9% QoQ). Annualised 9M09 DPU (including deferred units) came in at 10.9¢, broadly in-line with ours and consensus estimates. Net property income rose 3.1% YoY on the back of higher rental reversion. Suntec will trade ex-3Q09 distribution on 02 November 2009.
Maintain BUY, DDM-based TP of S$1.45. Achieved positive rental reversion and higher occupancy. Suntec achieved gross office revenue of S$28.7m for 3Q09, 7.9% higher than in 3Q08, driven mainly by higher rents achieved for the Suntec City and Park Mall offices. In 3Q09, committed occupancy for the overall retail portfolio stood at 99.1% (98.4% in 2Q) and 96.4% for office (94.8% in 2Q).
Healthy leasing activity. For 9M09, Suntec renewed and signed 513,000 sqft of office space. With this, the remaining office leases expiring in FY09 amounts to approximately 14,000 sq ft or 0.5% of the total office NLA. Suntec has seen healthy leasing activity, with eBay/PayPal taking a 28,000 sqft lease in Tower 5 (UBS’s former space). COSL Drilling, Interoil Singapore (oil & gas), Asia Green Capital (investment bank), Dan Bunkering (bunker trader) are among the new tenants at Suntec City.
Retail reprieve on overall earnings. Despite the economy being technically out of a recession, it is clearly still a tenants’ market and the focus on tenant retention remains paramount for all landlords. Nevertheless, with retail contributing to ~50% of overall income, we expect earnings prospects to remain favourable. We believe the spectre of higher retail footfall at Suntec City is likely to transpire when the Circle Line becomes fully operational in 2011. The opening of Esplanade and Promenade stations will materially enhance Suntec’s traffic footfall, a case that is currently seen in ION Orchard mall, given its connectivity with Orchard MRT. At current prices, Suntec offers investors an attractive dividend yield of 8.0% for FY10. Stock traded at 4.6% yield between 2005 and 2007. At our TP of S$1.45, stock still offers attractive yield of 6.5%.