Category: CDL H-Trust
CDL H-Trust – UOBKH
1Q08: DPU increased 63.4% yoy to 2.86 cents, driven by the strong performance of Singapore hotel portfolio
CDL Hospitality Trust (CD REIT) released another set of good results. Net property income surged 55.8% yoy to S$26.1m, on the back of 55.1% yoy revenue growth. This is due to strong performance of its Singapore portfolio. Distribution per unit (DPU) was up 63.4% yoy to 2.86 S cents, which translates into annualized DPU 11.5 S cents or an annualized DPU yield of 6.0%. Results are slightly ahead of our and consensus forecast. 1Q08 DPU accounted for 26.5% of our full year estimate from the existing portfolio.
Strong performance in all hotels, especially its Singapore portfolio. All four Singapore hotels registered double-digit revenue growth in 1Q08. Revenue Per Available Room (RevPAR) surged 37.7% to S$208, the highest RevPAU growth since the listing. The average daily rate (ADR) of total portfolio increased by 38%, while the average occupancy rate (AOR) flat at 84.4%.
CD REIT’s stable occupancy rates and rising room yield is laudable and above the industry average. The hotel industry in Singapore have seen 1-4 ppt dip in AOR on average in Jan-Mar 2008 as hoteliers forgo a few ppt occupancy rates for higher room yields. In our view, CD REIT’s decent hotel portfolio cater to both business and leisure customers and thus management can shift market mix to maximize yields while able to maintain occupancy rates.
DPU of 2.86 S cents is 63.4% higher yoy. This translates into full-year DPU of 11.5 S cents, or 2008 DPU yield of 6.0%.
Conservative property tax provision. 1Q08 is the first quarter that Singapore hoteliers feel the impact from the hotel property tax formula change. Being conservative, CD REIT nearly doubled its property tax provision in the quarter. Our forecast is also on the conservative side.
Scale down acquisition size assumption. We feel our previous S$300m acquisition assumed for each year in 2008-09 a bit optimistic, under current market uncertainties. Now we are assuming S$300m acquisitions to complete and contribute in 2009. We expect CDREIT to fund acquisitions fully by debt, in view of its ample debt capacity (Gearing ratio: 19.5% in 1Q08).
CD REIT has the right of first refusal to its sponsor’s (Millenium & Copthorne Hotels plc) Singapore assets. Copthorne Orchid Hotel, with about 440 rooms, could be a potential target for asset injection. Management maintain that Singapore, India and Vietnam remain the REIT’s preferred markets for acquisitions as the REIT is continuously looking for possible acquisition opportunities in Asia. Excluding acquisitions, CD REIT is priced at S$1.95.
Up our 2008 RevPAR growth assumption. The surprises from RevPAU growth is not unexpected (Refer to our report dated 12 Mar 08). We now lift our RevPAU 2008 growth rate from 10% to 15%. This is still much lower than what the industry data and CD REIT results in 1Q08 suggest. We remain cautious amid economic uncertainties and restrain ourselves from assigning a ????
Industry outlook still holds up well, despite the economic uncertainties. Singapore saw record numbers of tourist arrivals in the first three months of 2008, on track to realize 10.8m tourist arrivals target set by Singapore Tourism Board. Management has also indicated that the industry RevPAU growth in Apr 08 is as strong as that in the first three months.
Looking forward, the second half of the year is normally busier with Meeting, Incentive Travel, Convention and Exhibition (MICE) activities. Singapore is expected to hold the first Grand Prix night race in Sep 08. Various events underpin the demand for hotel rooms, barring a sharp downturn in the region. We are still positive on the sector in view of rising tourist arrivals and the hotel room crunch within the next two years in Singapore.
Maintain BUY. We cut our target price by 7.7% to S$2.40 based on the discounted cash flow model (WACC: 6.5%; terminal growth rate: 1.5%), mainly due to lower acquisition assumption. After netting off impact from lower acquisitions assumed and higher RevPAU growth, DPU edged down by 2.6%, 3.7% and 0.1% in 2008, 2009 and 2010 respectively. We continue to like CD REIT’s exposure on Singapore tourism sector. BUY.
CDL H-Trust – BT
CDL Hospitality Q1 available distribution surges
CDL Hospitality Trusts (CDLHT) has announced income available for distribution of $23.6 million for Q1 2008, a 91.5 per cent increase over the corresponding quarter last year.
CDLHT, a stapled group comprising CDL Hospitality Real Estate Investment Trust (H-Reit) and CDL Hospitality Business Trust (HBT), said income available for distribution per stapled security for the quarter rose 63.4 per cent year-on-year to 2.86 cents or 11.50 cents on an annualised basis.
Citing the 6.6 per cent year-on-year increase in visitor arrivals to Singapore in the first quarter of 2008, Vincent Yeo, CEO of M&C Reit Management Ltd, the manager of H-Reit, said: ‘As Singapore’s largest hotel owner by number of rooms, we are well positioned to take advantage of the very robust demand for transient accommodation in Singapore.’
Gross revenue for the quarter of $27.9 million was 55.1 per cent higher while net property income was $26.1 million, up 55.8 per cent.
Average occupancy rate for H-Reit’s Singapore hotels – Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King’s Hotel and Novotel Clarke Quay – actually fell marginally by 0.2 percentage points to 84.4 per cent.
However, Mr Yeo said this was more a function of the Reit manager, ‘managing for RevPar (room revenue per available room) growth’.
Mr Yeo also revealed that its market mix had changed with more business being contracted through corporate clients.
Indeed, RevPar increased by 37.7 per cent from $151 in Q1’07 to $208 in Q1’08.
Average daily rate (ADR) of $247 was 38 per cent higher compared to the same period a year ago.
The Singapore Tourism Board’s figures for gazetted hotels here in March show that the average room rate was estimated at $238, while the average occupancy rate was estimated at 87 per cent.
Mr Yeo said that it was also on track to make its forecast annual acquisitions of $200-$300 million.
In the quarter, Mr Yeo said that six of the 24 extended stay suites at the Grand Copthorne Waterfront Hotel were completed and the hotel has received positive responses from potential guests during the pre-marketing phase. All the suites will be launched officially by the end of this month.
Mr Yeo also added that ‘service apartments are within its ambit’, and he would not discount the possibility of acquiring a service apartment in the future.
At the end of yesterday’s trading, CDLHT’s unit price rose 6 cents to close at $1.92 per unit.
SREIT – JPM
JPM Tips 3 S-REITS To Short Based On “Crash Tests”
JPMorgan tips three Singapore REITS, or S-REITs, to own based on “crash-test” scenarios. “The S-REITs to own have sustainable income streams, relatively conservative asset values and gearing levels at the lower end of the risk spectrum. General risk aversion toward the sector as well as the debt refinancing overhang has created the most obvious valuation anomalies when risk is taken into account,” analysts Christopher Gee and Joy Wang say in report. Expects the market-weighted long portfolio to post 31% total return through end-2008. Says likes A-REIT (A17U.SG) with target price of S$2.93, CapitaMall Trust (C38U.SG) with target price of S$3.67, CapitaCommercial Trust (C61U.SG) with target price of S$2.27; all three rated Overweight. At Thursday’s close, A-REIT ended down 3.9% at S$1.98, CapitaMall +0.3% at S$3.11, CapitaCommercial down 3.6% at S$1.90.
JPM Cuts K-REIT Tgt To S$1.34; Keeps Underweight
JPMorgan cuts K-REIT (K71U.SG) target price to S$1.34 from S$1.52 on prospect of more substantial dilution to equity holders resulting from REIT’s proposed rights issue. Keeps at Underweight. “The key upside risks to our price target for K-REIT could come from an unexpected improvement in the outlook for office property in Singapore, or confidence being restored in real estate capital markets, thus allowing K-REIT to get out of the vicious cycle it is in currently.”
JPM Downgrades CDL Hospitality To Underweight
JPMorgan downgrades CDL Hospitality Trust to Underweight from Overweight, cuts target price to S$1.51 from S$2.55. Cuts follow house running worst-case scenario through valuation models for all S-REITs under coverage. Says S-REITs with highest lease expiries in 2008-09 are most exposed to sudden deterioration in demand conditions if either rental rates or occupancy levels were to drop unexpectedly. Adds, hospitality-oriented S-REITs, such as CDL Hospitality Trust, are most acutely affected in this test.
SREIT – Kim Eng
REITs Sector
♦ Defensive and high-yielding SREITs in the limelight amid stock market volatility
- REITs offer varying yields and geographical exposure. Attractive yields from industrial REITs, offering spreads over Government bonds of about 4%.
♦ M&A theme in focus
- Strategic review of MMP REIT signals possibility of privatization or M&A, in view of the relatively attractive P/B ratio.
♦ Watch out for retail REITs which have potential strong organic and inorganic growth
- Fraser Centrepoint Trust with several acquisitions from the Sponsor’s pipeline. Likewise for CapitaCommercial Trust and CapitaMall Trust for the strong management and direct benefit from CapitaLand’s capital recycling model.
♦ Inflation-hedged REIT
- Parkway Life REITs has an in-built rental mechanism that is hedged against increases in the consumer price index (CPI)
♦ Hospitality-centric REITs to benefit from higher room rates
- CDL Hospitality Trust (CDLHT) and Ascott REITs are well-positioned to enjoy higher RevPAR, given the rising hotel room rates. CDLHT could be best proxy to Singapore’s hospitality sector.
Tables here
SREITs – BT
MacarthurCook, Cambridge and Allco seen as potential takeover targets
CAMBRIDGE Industrial Trust, MacarthurCook Industrial Reit and Allco Commercial Reit are among potential takeover targets among Singapore real estate investment trusts (S-Reits), says Goldman Sachs in a report this week.
‘We believe that Reits with relatively smaller market caps, fragmented shareholdings or larger shareholders which may be open to exiting their stakes, and relatively high yields compared with sector peers are likely takeover targets,’ the report authored by analyst Leslie Yee said.
The current S-Reit climate, with disparity in distribution yields at which Reits in the same asset class are currently trading on the stock market, provides fertile ground for merger and acquisition (M&A) activities, the bank contends.
‘Hypothetically, a Reit trading at a lower yield that acquires a Reit trading at a higher yield, would be making an accretive acquisition, if the acquirer trades at the same yield post-acquisition,’ it added.
It may be easier for S-Reits to grow by acquiring other Reits as the traditional method of growing – through the acquisition of physical assets – has become more difficult. This is because the slump in S-Reit prices on the stock market has raised their distribution yields, making it harder for them to make yield-accretive acquisitions of properties.
Goldman Sachs said other factors that have brought forward M&A as a theme for the S-Reit space include the prices of certain Reits trading below net asset value, increasing openness of management teams discussing the possibility of M&A, and trade sales.
In mid-February, Macquarie MEAG Prime Reit’s (MMP Reit’s) manager announced a strategic review to enhance value for unitholders following the receipt of unsolicited bids made to Macquarie Real Estate, which holds a 26 per cent interest in MMP Reit.
‘We think this strategic review can lead among others to an outright sale of the Reit or sale of underlying assets on a piecemeal basis. There are precedents among the Australian Reits of acquisitions of entire Reits and piecemeal divestments of their properties. We see either of these actions as among the many ways in which Reits trading below book value can help realise book value,’ Goldman said.
‘We believe that MMP Reit’s efforts could cause shareholders of other Reits trading below NAV to seriously consider how best to unlock value. We note that Reits in mature markets like Australia divest assets on a piecemeal basis to optimise their portfolio, and we do not rule out S-Reits divesting individual assets to reconfigure their portfolios or even pay special dividends,’ it added.
‘Besides Reits’ takeovers, another possibility is the takeover of Reit managers. We note ARA Asset Management has stated it is keen to acquire other Reit managers,’ the report said.
The M&A theme will be positive for S-Reits. For large-cap Reits which trade at relatively low yields, M&A will create another avenue for growth. For smaller Reits trading at relatively high yields, investors should be able to cash in on premiums paid to buy out their respective Reits. ‘We expect the focusing of M&A as a theme by investors to result in narrowing of discounts to RNAV,’ Goldman said.
It also recommends investors to be ‘overweight’ on S-Reits given the defensive nature of these instruments and their relatively high distribution yields.
‘Based on our stress tests, we are comfortable that downside risk to our revised 12-month target prices is capped at about 14 per cent on bear case scenarios which we do not expect to materialise. In a flight to quality environment, we favour well-managed big-cap names, with debt capacity to fund acquisition growth, and which trade at discount to RNAV and show strong near-term organic growth.’
Goldman has upgraded office landlord CapitaCommercial Trust from ‘neutral’ to ‘buy’ and added it to its Conviction List of top ‘buy’ calls. It has also upgraded Ascendas Reit from ‘sell’ to ‘neutral’. The bank also has ‘buy’ recommendations for CDL Hospitality Trusts, K-Reit Asia and Suntec Reit. It has downgraded CapitaMall Trust from ‘buy’ to ‘neutral’, and MMP Reit from ‘neutral’ to ‘sell’.