CDL H-Trust – OCBC
Industry remained challenging in July
- Huge supply growth for mid-tier hotels
- QE tapering fears still affecting yield plays
- Maintain HOLD
Had been hoping for a better July
In our 19 Aug Hospitality report we stated that industry contacts indicated that July and August may have been showing RevPAR growth on a YoY basis for the industry as whole. However, disappointing data for the sector in July has just been published on September 1. Based on STB figures, we estimate that RevPAR fell 8% YoY for July. We think certain players are continuing to perform significantly better than their peers within each category, and 3Q13 for the sector as a whole could well show a contraction like in 1H13.
Challenging environment continues
We believe that hotel room supply will expand at 6.5% p.a. over 2013-2015 while hotel room demand will grow at only 5.8% p.a. Apart from the usual uplift in even numbered years like 2014 from more MICE events, this supply-demand imbalance will put pressure on real RevPAR growth. CDLHT’s hotels in Singapore are best classified as being in the Mid-tier/Upscale categories. It is worth highlighting that we anticipate a huge growth of 10.9% p.a. in mid-tier room supply, which means that CDLHT’s Singapore hotels could face significant RevPAR pressure over the medium-term. Recall that the 2Q13 RevPAR for CDLHT’s Singapore hotels fell 8.5% YoY to S$193. They were affected by increased competition, weaker corporate demand and the absence of a biennial event in April.
Yield plays hit by inevitable QE tapering
Concern over the timing of QE tapering by the US Federal Reserve and its impact on interest rate and bond yields continues to weigh on the performance of the Asian markets and yield plays like CDLHT since May.
Cut FV to S$1.56
Previously using an RNAV model, we have transitioned to a DDM model. Incorporating a risk-free rate of 2.7% (versus 2.5% previously) into our model, our FV drops to S$1.56 from S$1.73. We maintain a HOLD rating on CDLHT.
SPH REIT – AmFraser
Defensive attributes priced in
SPH REIT is a Singapore‐based real estate investment trust established principally to invest in a portfolio of income‐producing real estate which is used primarily for retail purposes in Asia‐Pacific. SPH REIT's portfolio consists of two retail properties, namely Paragon and the Clementi Mall. Distributions to Unitholders are on a quarterly basis.
Our investment thesis for SPH REIT is centred on its defensive growth prospects. We like SPH REIT for the quality of its retail assets, strong sponsor backing as well as its exposure to the healthcare services sector.
Portfolio quality is the key. The quality of SPH REIT's retail malls is backed by the positives of a large catchment population, strategic location and a balanced tenant mix. We particularly favor Paragon's unique integrated medical and retail offering, and believe that its niche in this aspect would leave it strongly placed to drive rental growth. For Clementi Mall, the advantage of a wide catchment area is expected to underpin its resilience amid the impending influx of suburban retail supply.
Sufficient financial flexibility to pull the acquisition trigger. With a comfortable debt headroom of S$351mil, SPH REIT has the financial flexibility to pursue acquisition opportunities. SPH REIT's near‐term focus remains in Singapore, and it could tap on its ROFR pipeline asset to catalyze further accretion to its distributions.
Initiate HOLD with FV of S$0.87. We initiate coverage on SPH REIT with a HOLD recommendation and a DDMderived fair value of S$0.87. From our perspective, SPH REIT's growth prospects and its defensive characteristics are already priced in. Current valuations present limited room for capital upside while a projected FY14 yield of Source: Bloomberg 5.4% pales in comparison with that of its retail peers.
Suntec – OCBC
New city taking shape
- Further progress on refinancing
- Performance likely to improve
- Valuations remain compelling
Establishment of Euro MTN programme
Suntec REIT announced on 15 Aug that it has established a US$1.5b Euro Medium Term Note programme, with ANZ Bank, Citigroup Global Markets, DBS Bank and Standard Chartered Bank as arrangers and dealers for the exercise. This comes promptly after Suntec REIT has secured a S$500m five-year unsecured loan facility in Jul to refinance all its borrowings maturing in Oct 2013. We believe that Suntec REIT may possibly make use of the programme to issue longer-term unsecured notes to address (part of) its refinancing needs (S$773.5m club loan) due in 2014. This will be a positive development in our view, as Suntec REIT will not only be able to lock in part of its debts into fixed rates, enhance its debt maturity profile but also improve its unencumbered asset ratio. The programme has been assigned a “Baa2” rating by Moody’s Investors Service.
Worst may be over
Looking ahead, we remain positive on Suntec REIT’s performance. While its 2Q13 NPI and distributable income were down 38.5% and 18.7% YoY respectively due to the concurrent execution of Phases 1 and 2 of the remaking of Suntec City, we believe that the worst is likely over given that Phase 1 enhancement works were completed in Jun and the retail space there has since become operational. Committed occupancy for Phase 1 has improved to 99.6% from the precommitment of 96.7% achieved in 1Q, whereas passing rent of S$13.99 psf pm was also significantly higher than the rate of S$11.31 for the rest of Suntec City Mall and S$12.59 projected for the whole project. Together with the continued strength and active lease management at its office segment, we are hopeful that any volatility in Suntec REIT’s financial performance is likely to be cushioned as it commences its Phase 3 (last phase) next year.
Maintain BUY
At current price, Suntec REIT trades at one of the lowest P/B in the S-REITs sector at 0.73x, while offering a compelling FY14F yield of 6.9%. We are revising our fair value from S$1.85 to S$1.80 due to higher riskfree rate. However, as valuations remain attractive and outlook is positive, we maintain BUY on Suntec REIT.
Saizen – AmFraser
Revenue from acquisitions kicking in. Saizen’s gross revenue and net property income increased by 9.7% and 13.6% respectively in FY13, largely supported by its acquisitions of seven properties. For the sixmonth ending 30 June 2013, Saizen declared a DPU of 0.63 cents, amounting to a full‐year DPU of 1.29c. This is marginally higher than our projected FY13 DPU of 1.24c.
Acquisitions to be immediately yield‐accretive. FY14 will witness the full‐year contribution of Saizen’s recently‐acquired properties. Sitting on a cash pile of JPY6bil, Saizen could tap on its cash balance to engage in immediately yield‐accretive acquisitions. Moreover, Saizen has unencumbered properties valued at JPY2bil, further strengthening its financial clout. We are currently pencilling in JPY2.3bil of acquisitions at a 6% NPI yield.
Visibility of DPU comes at a price. To provide its Unitholders with greater visibility on distributions, Saizen has entered into hedging transactions for its upcoming distributions. The distribution payment for the period ended 30 June has been hedged at an average rate of JPY75.12/S$ and the subsequent distribution is hedged at an average rate of JPY81.15/S$, which compares unfavorably with the current
rate of JPY77.14/S$. This would inevitably weigh on Saizen’s FY14 DPU in S$ terms.
Unit consolidation proposed. Accompanying its latest results, Saizen proposed a unit consolidation involving the consolidation of every five existing Units in Saizen REIT held by Unitholders into one Unit, subject to regulatory and Unitholder approvals. The motivation behind such a proposed move is to reduce the magnitude of a single tick move on Saizen’s share price, and thus its perceived volatility. The share consolidation is expected to be completed in November 2013.
Maintain HOLD on FV $0.195. We rollover our estimates and lower our TP to S$0.195 on the back of a higher risk‐free rate of 2.7%, implying a capital upside of only 6%. In our opinion, Saizen’s current yield level of 7%, which translates to approx. 430 basis points over the risk‐free rate, does not yet sufficiently compensate investors for the inherent macro, forex and interest rate risks. Maintain HOLD.
CRCT – DBSV
Worth a re-look
- Strong operating metrics underscores AEI success
- Acquisition of Grand Canyon Mall likely accretive
- Maintain Buy, TP revised to S$1.60
Strong operating metrics underscores AEI success
Coming into its own. The recent strong 2Q results highlighted that operating metrics are tracking closely to sales growth in China. This demonstrates CRCT’s successful key asset enhancement initiatives which had resulted in expanding tenant sales as well as shopper traffic, resulting in the trust’s ability to boost rental reversions. This solid track record bodes well for its upcoming AEI at Minzhongleyuan Mall in Wuhan. We believe its ability to generate better asset returns through this route would provide the trust with a strong inbuilt engine for growth and catalyst for share price performance going forward.
Proposed acquisition of Grand Canyon Mall in Beijing to be accretive. Grand Canyon Mall is the trust’s first third party acquisition and demonstrates CRCT’s ability to work with CMA to leverage on its platform and network. The under-rented mall is expected to be earnings accretive when the deal is completed in 2Q14, with NPI yield projected to rise from the present 3.5% to 5% and likely to reach 6-7% by 2016-17 when its leases are fully re-contracted. CRCT plans to fund this Rmb1.82bn acquisition via existing cash, new debt as well as equity. The recent roll out of its Dividend Reinvestment Plan offers unitholders the flexibility of dividend options while the trust can also conserve cash for its acquisition.
Maintain Buy. We retain our Buy call with an adjusted DCF-backed TP of S$1.60, as we adjust our sector-wide beta up by 0.05x and adopt a higher through-the-cycle interest cost of 3%. CRCT offers investors a pure China consumption driven exposure, which we believe will remain robust, through its portfolio of retail malls. CRCT’s share price had weakened in recent weeks in tandem with the broader market, and at the current share price, valuations look attractive. The stock provides a FY13-14F yields of 6.8-7.2% and total return of 23%.