SB REIT – OCBC
Strength despite cautious backdrop
- 1Q14 DPU up 6.1% YoY
- Portfolio assets fully occupied
- Proposed acquisition to augment earnings
1Q14 results above prospectus forecasts
Soilbuild Business Space REIT (Soilbuild REIT) delivered a strong set of 1Q14 results, with NPI of S$14.2m and distributable income of S$12.6m coming in 5.3% and 6.1% higher than its respective prospectus forecasts. The better performance was mainly attributable to higher revenue, a one-off pre-termination income of S$0.4m from a tenant, and lower property and finance expenses. Similarly, DPU of 1.562 S cents was 6.1% higher than its forecast. Excluding the one-off item, we note that DPU would have been circa 1.51 S cents, largely within market expectations (25.2% of consensus and our FY14F DPU).
Further improvements in operating metrics
Soilbuild REIT‟s portfolio occupancy reached 100% (4Q13: 99.9%), following the expansion of space by one tenant and new take up by another tenant at Eightrium during the quarter. Consistent with our channel checks, the 29,041 sqft space at Eightrium that was vacated by Barclays upon its lease expiry in Mar has been taken up by DBS Bank (two year lease tenure signed at market rates). In our view, this is a positive development given that the rental market at Changi Business Park has become increasingly competitive. For the three lease expires in 1Q, we understand that an average rental reversion of 6.6% was achieved. Notably, Soilbuild REIT has also forward-renewed five leases (2.8% of portfolio NLA) expiring in 1Q15 at rents 13.9% higher than preceding contracted rates.
Maintain BUY
Looking ahead, management believes that it is well placed to deliver on the forecasts set out in its prospectus, underpinned by its continued focus on early renewals for its lease expiries and cost containment. As announced in Mar, Soilbuild REIT has entered into an agreement to acquire 39 Senoko Way, an industrial property in Woodlands. With the deal expected to be yield-accretive, we believe its earnings profile will be further enhanced upon its expected completion in 2Q. We maintain BUY on Soilbuild REIT, but raise our fair value marginally higher to S$0.88 from S$0.87 after incorporating the positive 1Q showing.
CDL H-Trust – CIMB
Picking up the pace
1Q14’s results were largely in line (core net profit at 26% of our FY14 forecast), demonstrating a more positive hotel market than a year ago. The stronger performance was partly due to Feb 14’s Singapore Airshow and the betterthan- expected performance of the Maldives portfolio. We keep our Add rating with a higher DDM-based target price of S$1.97 (discount rate of 8.9%) as we raised our DPU estimates for FY14-FY16 by 2.3-3.5%; factoring in the stronger performance of both Maldives and Singapore portfolios.
Strong quarter
In 1Q14, CDL-HT’s top line and DPU grew by 15.3% and 2.4% yoy respectively. RevPAR for the quarter increased to S$192 from S$187 in 4Q13, due to the stronger performance of its Singapore hotels, though this growth was dampened by more intensive competition as the market continued to digest the increased supply of 3,357 rooms. The new portfolio in Maldives also boosted the top line by c.S$7.6m. This growth, together with a stronger performance of its New Zealand hotel, was nevertheless partly dampened by the weaker Australia portfolio performance, the weaker Australian currency, and the loss in income from the AEI at Claymore Link – scheduled to be completed in 4Q14.
Positive outlook expected to be dampened by new supply
With an expected stronger recovery in corporate spending in FY14, we expect CDL-HT (c.55% of earnings from corporate spending) to benefit from this trend. Furthermore, earnings are likely to be further boosted by a fully packed calendar and multiple MICE events this year. However, the potentially more intense competition as the market digests the new supply of hotel rooms is likely to limit any expected RevPAR upside to c.2-3% in FY14.
Maintain Add
With an expected stronger Singapore portfolio coupled with the stellar performance of its two hotels in the Maldives, we believe that CDL-HT’s earnings will continue to grow. We maintain our Add rating with a higher TP of S$1.97, with potential upside surprises if more yield accretive acquisitions are done during the year.
CDL H-Trust – OCBC
Encouraging 1Q14 results
1Q14 DPU up 2.2% YoY
- Maldives resorts key growth driver
- Competitive landscape to persist
1Q14 results exceeded expectations
CDL Hospitality Trusts (CDLHT) reported 1Q14 gross revenue of S$43.8m, up 15.3% YoY, due to higher contribution from its Maldives resorts and stable performance from its Singapore hotels. NPI rose at a slower pace of 4.1% to S$36.7m, dragged down by higher operating expenses with the inclusion of Jumeirah Dhevanafushi into CDLHT’s portfolio. Consequently, distributable income increased 3.0% to S$29.9m, while DPU grew 2.2% to 2.75 S cents. Nevertheless, the results were ahead of expectations, as the quarterly distribution made up 26.5% of our FY14 DPU projection.
RevPAR growth for Maldives and Singapore assets
Jumeirah Dhevanafushi made its maiden revenue contribution of S$6.9m, whereas Angsana Velavaru added S$0.7m (+54.1% YoY) to rental revenue. As a whole, the two Maldives resorts registered a RevPAR growth of 10.4% YoY. For the Singapore hotels, RevPAR also improved 0.5% to S$192 on the back of a 1.2ppt increase in occupancy to 88.2% and return of the biennial Singapore Airshow in Feb. This helped to offset the loss of income from the closure of Claymore Link for refurbishment. However, we note that the operating environment in Singapore remains competitive amid a restrained corporate travel budget and larger supply of new hotel rooms, as evidenced by a slight 0.5% decline in average daily rate.
Australia hotels hit by weaker AUD and variable income
The Australian hotels saw reduced contribution of S$5.0m in 1Q, down 21.4% YoY. This was attributable to a depreciating AUD and lower full-year variable income of S$1.1m (1Q13: S$2.0m) as a result of softer showing in 2013 and partial closure of Mercure Brisbane. Management cautioned the slower Australian economy and lower activity in the mining sector may lead to continued weakness.
Maintain HOLD
Looking ahead, CDLHT expects the ~2,500 new rooms supply to perpetuate the competitive environment in Singapore. For the first 23 days of Apr, we understand that RevPAR for its Singapore hotels eased 1.2%. However, as we factor in the better results, our fair value is now raised to S$1.80 from S$1.65. Maintain HOLD.
CRCT – OCBC
Boost from Grand Canyon
- 1Q14 DPU up 3.9% YoY
- Rental reversion of 23.0%
- Minzhongleyuan to reopen in 2Q
Positive start to FY14
CapitaRetail China Trust (CRCT) reported a promising set of 1Q14 results, with gross revenue growing 15.5% YoY to RMB231.7m and NPI up 17.9% to RMB155.6m. The improved performance was due to contributions from newly-acquired Grand Canyon and higher rentals from its existing malls. In SGD terms, gross revenue and NPI grew at a faster 22.4% and 25.0% YoY to S$48.1m and S$32.3m, respectively, as a result of a stronger RMB. Distributable income rose 13.2% to S$19.6m, while DPU was up 3.9% to 2.40 S cents. This is largely in line with our expectations, as the quarterly DPU formed 25.1% of our FY14 forecast.
Strong operational performance
Leasing demand at the multi-tenanted malls remained robust. Particularly, CRCT again strengthened the occupancy and tenant mix at Grand Canyon since its acquisition in Dec 2013. Occupancy at the mall, we note, stood at 99.8%, up from 95.9% in prior quarter, and included new quality tenants such as Li Ning and Childhood Villas. Over the quarter, positive rental reversion averaging 23.0%
was also achieved for the 165 leases renewed/secured at the multi-tenanted portfolio, with Grand Canyon leading the pack at 42.8% growth. Management shared that tenant sales increased 13.9% YoY, whereas shopper traffic grew 7.3%. All these activities helped to contribute to a 39.2% NPI growth for the multi-tenanted malls. For CRCT’s master-leased malls, a 10.1% NPI growth was registered, similarly respectable in our view.
in our view.
Downgrade on valuation grounds
CRCT disclosed that the asset enhancement works for CapitaMall Minzhongleyuan is near completion, and that ~90.0% of the mall’s total NLA has been secured or in advanced negotiations for leasing commitments. In addition, the secured rental was 11.5% higher than budgeted. With the mall’s scheduled reopening in 2Q14, we expect it to provide additional rental uplift to CRCT’s earnings. CRCT is currently the top performer in the S-REITs sector, clocking a 13.2% gain YTD. At its present level, we believe CRCT is justly valued, with limited upside over the near term. As such, we downgrade CRCT to HOLD from Buy. Our fair value is raised marginally from S$1.54 to S$1.55 after factoring in the results.
CDL H-Trust – Maybank Kim Eng
Maldives foray proves to be a gem
- Singapore Airshow boosted 1Q14 occupancy by 1.2ppt YoY and RevPAR by 0.5% YoY; 2H14 should benefit from opening of Sports Hub and hosting of more world-class events.
- Maldives resorts did better than expected, contributing 12% of 1Q14 NPI; DPU raised by 2.5% to reflect this.
- TP raised to SGD1.91 (from SGD1.75); reiterate BUY.
Results in line with expectations
CDLHT posted a 15.3% YoY rise in 1Q14 revenue to SGD43.8m, bolstered by its Maldives resort acquisitions. Revenue would have been higher were it not for the weaker trading performance of its Australian hotels and partial closure of Mercure Brisbane for refurbishment. DPU rose 2.2% YoY to 2.75 SGD cts. With the return of the biennial Singapore Airshow in February, CDLHT’s Singapore hotels saw 1Q14 occupancy improved by a modest 1.2ppt YoY to 88.2% and RevPAR edged up 0.5% YoY to SGD192. Balance sheet remained strong with a low gearing of 29.9%, with 21% due for refinancing in 2014 and 36% in 2015.
Maldives resorts post stellar performance
CDLHT expects another 2,000 hotel rooms to be added during the remainder of 2014 (2013: 3,357). This should provide some relief to hoteliers. The opening of the Sport Hubs in June and the hosting of events such as World Club 10s Rugby in the same month and Women’s Tennis Association Championships in October would also add to the attractiveness of Singapore’s MICE infrastructure. The Maldives resorts, acquired last year, delivered stellar performance in 1Q14. Despite making up just 8% of CDLHT’s asset value as of end-Dec 2013, they contributed 12% of 1Q14 NPI and 20% of revenue. Visitor arrivals to Maldives registered strong growth of 11.6% YoY for the first two months of the year. As Chinese outbound travel to the island nation continues to grow, CDLHT can expect to benefit from rising Asian affluence. We adjust our FY14E-16E DPU by close to 3% on better-than-expected performance from Maldives. Reiterate BUY with a higher DDM-derived TP of SGD1.91.