FE-HTrust – OCBC
3Q13 results in line
- 3Q13 DPU of 1.41 S cents
- Hotels outperform peers
- Maintain HOLD
3Q13 as expected
Far East Hospitality Trust (FEHT) announced 3Q13 results that were in line with ours and the street’s expectations. 9M13 distribution per stapled security of 4.22 S cents formed 74% of ours and 73% of the street’s prior FY13 forecasts. Gross revenue for was S$31.5m or 9.4% lower than management’s forecast (based on IPO prospectus and the circular for the acquisition of Rendezvous). Net property income was 9.4% below forecast at S$28.5m. Income available for distribution was S$24.2m or 7.4% below forecast. 3Q13 distribution per stapled security was 1.41 S cents or 7.8% lower than forecast. However, we emphasize that the results were within expectations for the market.
RevPAR down 2.7% YoY
RevPAR for the hotels, excluding the Rendezvous property (which was acquired on 1 Aug), was S$167.1, 10.2% below forecast and down 2.7% YoY mostly due to price competition in the sector. Average room rates were lower by 1.9% YoY, while occupancy was ~0.7 ppt softer YoY at 86.7%. FEHT’s mid-tier hotels saw RevPAR decline 0.4% YoY, while RevPAR for its upscale hotels fell 10.1%, affected by lower corporate spending. Management anticipates a subdued 4Q13, although RevPAR could show moderate growth in 2014. Rendezvous property is tracking in line with its expectations. FEHT’s hotels continued to perform relatively well compared to the industry. Mid-tier and upscale categories in industry-level data demonstrated declines of ~2% and ~12% respectively. The serviced residences registered RevPAU that was higher by 2.3% YoY at S$227.1, although this was 0.6% lower than forecast. Management is seeing increased competition for stays of 6-months or longer, and it warns that competition could increase further next year.
AEI plan
Management has plans for ~10% of their room inventory to undergo AEI starting from next year, and will spend ~S$10m in capital expenditure. This is also in line with our expectations.
Maintain HOLD
We maintain a FV of S$0.92 and HOLD rating on FEHT. We forecast a FY13 yield of 6.3%.
PCRT – CIMB
Maiden contribution from Jihua
With the opening of Jihua Mall came its maiden revenue contribution of S$1.3m and pre-operating expense of S$2.7m. While pre-operating expenses may drag down earningsinFY13-14, the effect on distributions should be mitigated by the earn-out funds.
3Q/9M13 DPU accounted for 24%/71% of our FY13 forecast, in line with our and consensus expectations. Our target price, still based on 20% discount to RNAV, is unchanged at S$0.57 as we roll over estimates to FY14. We maintain a Neutral rating.
Maiden revenue contribution from Jihua Mall, Foshan
The Jihua Mall officially started operations in Aug 2013 and contributed revenue of S$1.3m in 3Q2013. While committed lease for the mall currently stands at 95%, only c.70% of the mall are currently operational and some tenants are in their rent-free fit-out period. We expect operational and rent-paying leases to reach the committed level and stabilise by 2-3Q2014.
Pre-operational cost weighs
S$2.7m out of S$3.1m property operating expenses was incurred for Jihua, mainly for marketing and pre-operational costs. Increased marketing expenses will be beneficial if it translates into higher shopper traffic and tenant sales growth, and consequently rental income. However, we believe that the unoccupied residential/office units in the vicinity remains a concern for Jihua and Qingyang. Given our expectation of longer gestation period for these two malls, we expect pre-operational costs to drag down earnings in FY13-14.
Dividend buffer buys time
3Q2013 shopper traffic for Shenyang Longemont increase 183% yoy on the back of shift in tenant mix and aggressive marketing campaigns. We believe the management will be able to fulfil their aim of growing tenant sales, and consequently rental revenue, in time to come. The earn-out fund, which lasts till end 2014, provides the much-needed time for its assets to stabilise. Upon its expiration, the management has not rule out the possibility of monetising completed assets to unlock value.
Cambridge – CIMB
It’s all about debt
Proactive capital and risk management has allowed CIT to be in a stronger position than before. Given its robust balance sheet, we believe CIT is well positioned to make acquisitions when the opportunity arises while continuing to grow through AEIs.
3Q13 results were largely in line with our and consensus estimates. 3Q13 DPU accounted for 24% of our FY13 forecast, with 9M13 DPU meeting 72%. We tweak our model to account for the slightly weaker than expected results and roll over our valuations to FY15. In view of the strong balance sheet, we upgrade our rating from Neutral to Outperform with a higher DDM-based (discount rate: 8.3%) target price of S$0.79.
Proactive management
3Q13 DPU was up 3.9% yoy, mainly the result of additional rental income contribution from the four acquisitions completed earlier this year. During this quarter, portfolio occupancy remained high at 97%. Recently, CIT refinanced S$250m of debt facilities maturing in 1H14 and, in the process, lowered the trust’s borrowing cost to c.3.9%. During this process, S$81.3m from the proceeds from various divested properties, including 63 Hillview Avenue, was used to retire part of the S$208m term loan due in 1H14 while the remaining S$100m was refinanced to June 2016. By doing so, CIT’s gearing was reduced to a healthy 27.9% (vs. 35.8% in 2Q13) with no refinancing needs till 2015.
Capital efficiently used
By retiring some of its debt, we estimate CIT saves c.S$3.3m p.a. in terms of interest expenses. Interestingly, this is more yield-enhancing than owning 63 Hillview, which was only giving a yield of 2.3% vs. the all-in interest cost of c.4.0% CIT was paying. All-in interest cost post re-financing is reduced to 3.9%.
Upgrade to Outperform
Although the acquisition market remains challenging, we believe a strong balance sheet will allow CIT to be well positioned to make any acquisitions/AEIs when opportunity knocks. In addition, the long debt expiry profile, together with c.86% of debt under a fixed rate, will allow it to weather any hikes in interest rates.
CDL H-Trust – CIMB
The waiting continues
While the hospitality sector remains weak, we believe the negativity has largely been factored in given CDL-HT’s current valuation of 1xP/BV. We continue to wait for re-rating catalysts such as turnaround signs in the hospitality sector and accretive acquisitions.
3Q13 results were slightly weaker than our estimate with DPU for the quarter accounting for 23% of our FY13 forecast and 9M13 DPU at 71%. We lower our estimates to account for the slightly weaker-than-expected results and roll over our valuations to FY15. This nudges up our DDM-based target price (discount rate: 8.5%) to S$1.76. Maintain Neutral.
Earnings remain weak
During 9M13, CDL-HT registered a drop of 1.7% yoy in NPI and a fall of 3.9% yoy in distributable income. This can be mainly attributed to lower gross revenue from the Singapore hotels and forex losses as a result of the weakening Australian dollar. However, this was mitigated by additional rental contributions of S$1.9m from Angsana Velavaru, Maldives. Similarly, on a qoq basis, revenue and distributable income dropped 0.8% and 2.2%, respectively, as RevPAR remained weak at S$191 (-6.4% yoy).
Challenging local market
The weak Singapore hotel performance can be mainly attributed to an increase in competition due to additional new supply of hotel rooms in the market and weak corporate spending (accounts for c.50% of total revenue). As a result, occupancy at these hotels was replaced by an increase in the leisure business, which was secured at lower rates.
Maintain Neutral
With the anticipated high supply of hotels for CY13-15 (5.9% CAGR), we remain concerned about the possibility of near-term oversupply as visitor arrivals are forecast to grow at a slower rate (5.7% CAGR). However, given its strong balance sheet and management’s active search for acquisition targets, we maintain our Neutral call on CDL-HT, with a turnaround in the hospitality sector and accretive acquisitions as key re-rating catalysts.
SB REIT – AmFraser
Soilbuild REIT’s performance exceeding prospectus guidance.
Soilbuild REIT recorded a DPU of 0.76c for the period from Listing Date (16 Aug 2013) to 30 Sep 2013. This represents an increase of 3% over the forecast DPU of 0.738c, and forms 36.2% of our DPU forecast of 2.1c for the period from listing to end‐Dec 2013. The DPU of 0.76c is payable on 4 Dec 2013.
Achieving positive improvements at the operating level.
Soilbuild REIT’s positive variance from its projected DPU in its prospectus is attributable to operational improvements across the board. Expansion by an existing tenant at Eightrium as well as 100% retention of leases expiring allowed Eightrium to improve its occupancy levels from 95.3% at IPO to 97.4% at 30 Sep 2013. As a result, portfolio occupancy is currently at 99.8%, with no remaining leases due for expiry in FY13. Notably, leases that were renewed achieved positive rent reversions of 7.9% over preceding average rental rates, in line with our expectations, which further supported underlying distributable income.
75% of interest rate exposure hedged.
Also, Soilbuild REIT managed to achieve an all‐in interest cost of 3.11% as at 30 Sep 2013, and this compares favourably with its guidance of 3.28% in its Prospectus. Aggregate leverage stood at 29.4%, below the 29.9% forecast in the Prospectus.
Stability and growth at the heart of our investment thesis.
We continue to like Soilbuild REIT for its best‐in‐class business space portfolio, yield sustainability and stronger‐than‐average exposure to the business park market. At current levels, we project Soilbuild REIT’s FY14 yield at 7.9%, which makes it a very compelling yield play among S‐REITs. Maintain BUY at FV S$0.84.