A-HTrust – DBSV
Boosted by acquisitions
- 3Q14 results in line
- Australian hotel portfolio to underpin growth; extending debt expiry profile to 3.7 years reduce interest rate risks
- Maintain HOLD, TP revised slightly higher to S$0.76
Highlights
3Q14 results in line. Ascendas Hospitality Trust (A-HTRUST) reported higher revenues and net property income (NPI) of S$56.6m and S$23.4m, which were 10% and 37% higher y-o-y, respectively. The stronger performance was driven by an improved performance of its Australian hotels post asset enhancement (RevPAR was 12% y-o-y higher at A$147/night), supported by contribution from investments (full quarter contribution from Ibis Beijing Sanyuan and recently acquired Park Hotel Clarke Quay in Singapore). Revenues from Ariake Sunroute were weaker due to the depreciation of the JPY against SGD. Thus, distributable income of S$16.6m translates to a DPU of 1.61 Scts (3.9% higher y-o-y), when compared against the 1.55 Scts delivered a year ago (before Sponsor’s distribution waiver).
Our View
Australian operations gaining traction, RevPARs up 12% y-o-y. The refurbishment and rebranding exercises at its Australian portfolio have been substantially completed, resulting in a robust uplift in RevPAR of c.6-18% y-o-y (averaging +12% y-o-y to S$147/night). Occupancies improved by 5 ppts to c.85% in 3Q14. Apart from offering a refurbished new product, the manager also took the chance to tweak the clientele mix towards having a higher corporate base. Looking ahead, the manager expects the Australian portfolio to continue reap the benefits of its refurbishment exercise through room rate hikes and improved margins. For its hotel operations in Asia, the manager expects performance to remain fairly stable, supported by high fixed rent component (Singapore and Japan) , while its China hotels (Ibis and Novotel Beijing Sanyuan) is likely to see continued pressure on room rates.
Reduced refinancing risks; natural hedge for overseas assets. A-HTRUST also refinanced loans expiring in 2014/2015, extending its debt expiry profile to 3.7 years (vs 2.2 years previously), thus AHTRUST will have almost minimal debt up for renewal over the next 2 years. In addition, the manager has also taken up a higher % of debt in foreign currencies to act as natural hedges for their diverse exposure. As a result, average interest cost is expected to inch up slightly to c.3+% (vs 2.9% previously).
Recommendation
HOLD, TP inched up to S$0.76. Our HOLD call is maintained premised on limited upside to our revised TP as we roll forward valuations. Yields of close to 7.7-8.7% are expected to limit downside to share price.
Religare – CIMB
Proposed Mohali acquisition
RHT announced its proposed acquisition of The Mohali Clinical Establishment (Mohali) and interested person transaction to be entered into with Fortis Healthcare. We expect the acquisition to be yield accretive and come through in FY15. While we view the acquisition positively, we expect the higher funding cost to limit its positive impact. Our DDM-based target price increases by 1%and FY15 DPU by 1.3% as we factor in the potential acquisition. We maintain our Add rating.
What Happened
RHT announced its proposed acquisition of Mohali in Punjab, which isoperated by Fortis Healthcare and owned by Radha Soami Satsang Beas, a non-profit philosophical organisation. The total costs to be incurred are estimated at S$68.8m, of which S$65m will be funded by debt and the remainder by cash. RHT proposes to enter into a Hospital and Medical Services Agreement (HMSA) with Fortis Healthcare, similar to RHT’s existing HMSAs, with base fee with 3% annual increment and variable fee at 7.5% of the operating income. There will be a non-recurring base fee of S$0.7m for the first year and S$0.5m for the second as the oncology block ramps up.
What We Think
Yield accretive. We view this deal positively as it is yield accretive and there is growth potential from the new 55-bed oncology block in Mohali, which is expected to be functional in 2HFY14. We estimate the initial net fee yield to be7.3% and an impact on FY15 DPU of 1.3%, limited by the higher funding cost of 5.8%.
Balance sheet to remain healthy. Gearing is expected to increase to 13.3% post the acquisition. Factoring in potential capital expenditures, RHT’s FY14 and FY15 asset leverage of 11-20% remains one of the lowest among S-REITs/business trusts. There is also ample debt headroom of about S$374.7m assuming gearing limit of 40%.
What You Should Do
The yield-accretive acquisition is a positive and RHT continues to offer stability through its base fee (70% of FY14 revenue) and growth through the variable fee and hospital income. Its FY14 and FY15 dividend yield of about 10.7% on average remains one of the highest among S-REITs/business trusts. We maintain our Add rating.
CDL H-Trust – CIMB
Tide is turning
CDL-Hospitality Trusts (CDL-HT) just released its 4Q13 earnings with revenue and DPU growing by 2.8% yoy and 0.7% yoy respectively. These results are inline with our FY13 estimate with a deviation of 2.0% . On the back of more events coupled with the recovery of both global economy and corporate spending, we maintain a more uptick outlook of the hospitality market in FY14. However, with an expected 2,926 rooms coming on stream this year, the growth in RevPAR is expected to be limited to 2-3%. Upgrade to Add with unchanged DDM-based (discount rate: 8.9%) TP of S$1.79.
Results
For FY13, CDL-HT registered a drop in both NPI and distributable income by 1.4% and 3.1% respectively. RevPAR for the quarter dropped to S$187 (from S$191 in 3Q13), mainly attributed to lower gross revenue from the Singaporehotels and forex losses as a result of the weaker Australian dollar. This was mitigated by additional rental contributions of S$10m from Angsana Velavaru, Maldives.
Outlook brightens
As the global economy continues to recover, we expect corporate spending to strengthen correspondingly in FY14. With c.50% of total revenue attributed from this avenue, we expect CDL-HT earnings to strengthen. In addition as bi-annual events such as the Aerospace show and Food & Hotel Asia take place this year, coupled with more MICE events, we expect the hospitality market to benefit as a whole. However, with 2,926 rooms coming online in FY14, the positivity is expected to be dampened by the additional competition as the market digests the additional supply.
Upgrade to Add as positivity outweighs
CDL-HT is trading at 7.0%/7.4% FY14/15 dividend yield. As the positivity in the hospitality outweighs the additional supply of hotel rooms in FY14, while CDL-HT continues to benefit from the strong RevPAR growth of its two Maldives hotels, we believe a turn around to the stock is imminent. Upgrade to an Add with unchanged DDM-based TP of S$1.79 as management continues to boost earnings via potential acquisitions in countries such as Japan, Australia and Asia.
Suntec – CIMB
A display of growth potential
SUN ended FY13 on a high note, with 4Q13 revenue and net property income (NPI) posting a +30.2% yoy and +10.2% yoy jump, respectively. FY13 DPU was 3% above our forecast. The strong growth in earnings was mainly attributed to the opening of Phase 1 of Suntec City following the completion of AEI works. We maintain an Add rating with an unchanged DDM-based (discount rate: 8.0%) target price of S$1.96 on the back of further income
contribution from the near-to-completion Phase 2 of Suntec mall in 1Q14.
Strong quarter
Suntec REIT (SUN) posted a respectable 4Q13 revenue of S$71.6m (+30.2%) and NPI of S$49.8m (+62.9%). The strong growth was mainly attributed to the completed Phase 1 AEI at Suntec mall. Currently, these area boasts a high 99.6% committed occupancy, while the areas unaffected by the AEI reported an occupancy of 91.3%. Together with Park Mall, SUN’s retail malls have achieved a high occupancy of 97.3% while its office portfolio remained at 99.6%.
AEI to bring near-term growth
Phase 2 of the AEI has achieved an impressive pre-commitment of 97.0%, scheduled to be completed in 1Q14, SUN is expected to benefit from the additional income contribution in 3Q14 (assuming 2-3 months of a fitting out period). However, earnings in 1H14 are expected to remain weak as SUN begins Phase 3 of the AEI in early Feb, which is scheduled to be completed in 4Q14. During the results briefing, management indicated that the AEI continues to remain on track for a 10.1% ROI, securing an average rental rate of S$10.10–S$12.59 psf/mth (based on stabilised rent).
Well-poised for future growth
With 12.5% of office space up for renewal in FY14 and asking leases secured at S$8.65 psf/mth last quarter, we expect SUN to continue to achieve positive rental reversions in FY14 – particularly on the back of a recovering office market. In addition, the recent acquisition of Leighton Tower is expected to bring the next stage of growth for the REIT in FY16 when the construction is completed. On the basis of clear growth prospects, we maintain an Add rating with an unchanged target price of S$1.96.
CCT – CIMB
Stable with slow growth
CCT posted flattish 4Q13 results, with revenue and DPU growing at 1.5% and 2.0% yoy respectively. We deem the full-year results largely in line as they are only 2% and 1% short respectively of our FY13 revenue and DPU estimates. The next phase of growth is expected to be driven by the upcoming CapitaGreen that is scheduled for completion in 4Q14. We maintain our Hold rating, but trim our FY14-15 EPS for the slower commitment rates, resulting in a lower target price of S$1.51
Stable set of results
4Q13’s results came in flattish, with a topline of S$98.6m (+1.5% yoy) and DPU of 2.1Scts (+2.0% yoy). The growth in revenue was due mainly to higher revenue contribution from most properties, in particular Six Battery Road, Raffles City Singapore, HSBC Building and the full-year contribution from Twenty Anson. During the period, c.S$4m worth of savings as a result of lower interest cost raised CCT’s distributable income to S$234.2m (+2.5% yoy) while portfolio occupancy continued to creep up to 98.7% (vs 97.6% a quarter ago).
Strong balance sheet
Gearing stayed stable at 29.3% (29.5% in 3Q13), while the average cost of debt dipped slightly to 2.6% (2.7% in 3Q13). Having completed all its FY14 financing needs, we believe management will continue to look at its refinancing needs for 2015 in the coming quarters. Currently, with 80% of its total debt hedged as a fixed-rate debt, we believe CCT is fairly immune to any rate hikes.
Maintain Hold
During the briefing, management highlighted that it aims to achieve a rental rate of S$12-14 psf/mth when CapitaGreen stabilises. Given the average spot rent of c.S$9.75 psf/mth for Grade A offices at the moment, we believe it will be sometime before this level can be achieved. With a slightly slower than expected progress in the commitment rates (no pre-commitments currently), we have fine-tuned our model and lowered our earnings by c.1% for FY14 and FY15. We maintain Hold with a slightly lower target price of S$1.51 as we await more impactful catalysts.