CDL H-Trust – OCBC
2Q13 results miss street’s expectations
- 2Q13 SG hotels RevPAR down 8.5% YoY
- Boost from Angsana Velavaru acquisition
- Maintain HOLD
Misses street’s expectations
CDL Hospitality Trusts reported a 2.9% YoY decline in 2Q13 gross revenue to S$35.6m and a 4.4% YoY fall in net property income to S$32.6m. Income available for distribution contracted 6.4% YoY to S$29.4m. The results were in line with our expectations, with 1H13 DPU of 5.41 S cents forming 50% of our prior FY13 estimate. 2Q13 results missed the street’s expectations with 1H13 DPU forming only 47% of the mean FY13 estimate.
Weak quarter from SG as expected
The weak performance was chiefly due to lower gross revenue from the Singapore hotels, which was mitigated by a S$1.9m revenue boost from Angsana Velavaru (Maldives), which was acquired in Jan 2013. 2Q13 RevPAR for the Singapore hotels fell 8.5% YoY to S$193, affected by increased competition, weaker corporate demand, the absence of the biennial Food & Hotel Asia event in Apr, and a mild impact from the haze. Contribution from the Australian hotels in Brisbane and Perth was slightly lower YoY, affected by the slowing Australian economy and a weaker AUD.
Reducing FY13 RevPAR growth assumption
We understand from management that the performance of CDLHT’s Singapore hotels in July was still weak, although numbers a bit firmer for Aug and Sep. Our checks suggest a similar trend for the overall industry. However, we remain concerned about a mild oversupply situation, with expectations that hotel room supply will grow at 5.8% p.a. from 2013 to 2015, while room demand will only grow at 5.4% over the same period.
New FV of S$1.73
Estimating the financial effect of the planned closure of most of the Orchard Hotel Shopping Arcade for AEI (the Galleria will be kept open) from late 2013, and adjusting our assumptions for the non-Singapore hotels, our FY13F DPU falls to 10.4 S cents from 10.9 S cents. Incorporating a risk-free rate of 2.5% (versus 2.2% previously) into our model, our FV drops to S$1.73 from S$1.79. We maintain a HOLD rating on CDLHT.
CDL H-Trust – OSK DMG
Results Remain Weak
CDL Hospitality Trusts’ gross revenue and net property income for 2Q13 softened to SGD35.6m (-2.9% y-o-y) and SGD32.6m (-4.4% y-o-y) respectively. The quarter’s DPU of 2.72 cents (-6.8% y-o-y) was in line with estimates, but deviated by -1.5% from our forecast. Due to the persistently weak outlook for Singapore’s hospitality sector, we remain NEUTRAL on the stock, with a lower TP of SGD1.63.
Earnings soften due to corporate spending cuts, fewer events. CDL Hospitality Trusts (CDREIT)’s weak 2Q13 earnings were mainly attributed to softer demand for hotel space versus a year ago, as corporations continued to cut travel budgets amid uncertain global economic conditions. Stiffening competition in the hospitality industry resulting from the new supply of hotel rooms, together with the absence of the biennial Food & Hotel Asia event in April, dampened its hotels’ performance. This led to its 2Q13 revenue per available room (RevPAR) at its Singapore hotels declining 8.5% y-o-y to SGD193 (1H13 RevPAR: -8.1% y-o-y to SGD192).
Overseas income mitigates weaker earnings. Earnings at the group’s hotels in Australia also weakened as that country’s economy and mining sector turned sluggish. However, this was partly mitigated by the high proportion of fixed rent contributed by the group’s Australian properties. Meanwhile, its hotel in the Maldives, Angsana Velavaru, performed well, registering a RevPAR growth of 27.5% y-o-y.
Earnings to stay feeble in upcoming quarters. Given CDREIT’s relatively high reliance on corporate spending (c. 60%), we expect earnings to remain soft as companies tighten their budgets in the upcoming quarters. In addition, with an expected supply of more than 4,500 new hotel rooms in 2013, 1,600 rooms in 2014 and 3,506 in 2015, we expect the competition within the hospitality sector to intensify.
Maintain NEUTRAL, with a lower SGD1.63 TP. In view of the weakerthan-expected results, which were partially offset by Management’s efforts to keep its occupancy rate high (88% in 2Q13), we remain NEUTRAL on the stock, but with a slightly lower DDM-based (COE: 9.8%, TGR: 2.0%) TP of SGD1.63, as we trim our topline forecast by 9.8%.
CLT – DBSV
More to come
- 2Q13 DPU of 2.147 Scts in line
- Acquisitions a likely catalyst; opportunities to extract further GFA in portfolio
- BUY, TP S$1.45
Highlights
2Q13 DPU of 2.147 Scts in line. Cache Logistics Trust (“Cache”) reported gross revenue and net property income of S$20.4m and S$19.6m, which were 16.5% and 17.0% higher y-o-y. The improved earnings were largely attributed to contribution from the acquisition of Precise Two, which was completed in April 13, supported by higher rental adjustments. Distributable income of S$16.6m was 20% higher y-o-y, translating to a DPU of 2.147 Scts (+8% y-o-y). Cache’s 1H13 DPU of 4.38 Scts forms c49% of our FY13F DPU.
Our View
Lowly geared balance sheet; growth opportunities galore for management. Gearing remains conservative at c.29%, which is below management’s optimal range of 35%. Looking ahead, we continue to see opportunities for the Manager to utilise its balance sheet to fund acquisition opportunities. In this respect, the Manager is looking actively at potential acquisitions (sponsor CWT/C&P and 3rd
parties) in Singapore, Malaysia and China. We have factored in S$200m worth of acquisitions in our FY13/14F.
Redevelopment potential within portfolio. With the master lease expiring in 2014F, management remains keen to explore a redevelopment of Kim Heng Warehouse, where the built-up GFA of 54,000sf is substantially lower than the maximum GFA of c.180,000sf allowed for the property. If executed upon, there could be significant upside to earnings and capital values in the medium term.
Recommendation
BUY, revised TP of S$1.45. With a visible and growing pipeline of warehouses (totaling up to 4.5m sqft of GFA) from sponsor CWT/C&P, we remain positive on Cache’s long term inorganic growth prospects. Forward yields of 7.0-7.2% are attractive given its solid earnings profile with minimal earnings downside risk. Our TP is revised to S$1.45 as we adopt higher risk free assumptions (2.6% vs 1.8%).
StarHill – DBSV
Bright lights, big city
- 2Q13 results in line
- Strong reversions for Singapore and Malaysian properties
- Expect stronger 2H13; Maintain BUY, TP S$0.94
Highlights
Still shining bright in Orchard Road. Starhill Global REIT recorded 2Q13 revenues of S$49m (+6% y-o-y), NPI of S$39m (+5% y-o-y) and distribution income of S$26m (+11% y-o-y).The increase in revenue and NPI were attributable to higher occupancies and reversions for the Singapore properties as well as full-quarter contributions from Plaza Arcade in Australia, which was acquired in 1Q13. The Manager announced 2Q13 DPU of 1.19Scts on an enlarged share base of 2.15bn units (+11%) after YTL Group converted their CPUs into units in early July. The 1H13 DPU of 2.56Scts includes one-off Toshin payout from accumulated rental arrears in 1Q13 of 0.19Scts. 1H13 DPU of 2.56Scts comprises c.53% of our FY13F DPU.
Positive rental reversions across Singapore and Malaysian properties. Starhill announced major rent reviews in Singapore and Malaysia for 2Q13: Toshin renewed its master lease for another 12 years with 6.7% increase in base rent; Starhill Gallery and Lot 10 also saw master tenancy reversions of 7.2%. These reviews were concluded in June, and should contribute to earnings in the coming quarters. Wisma Atria reported rental reversions of c.15% after completion of its AEI works. Around 12% of NLA was reconfigured to house new-to-market brands such as i.t. and Liu.Jo, and going forward, the Manager aims to have 30% of the mall represent tenants that are unique to Wisma.
Our View
Income growth prospects still strong. Going forward, we expect Starhill’s malls in China and Japan to underperform as a result of increasing retail competition in Chengdu and the depreciating Yen. We believe there is good value in the David Jones Building and Plaza Arcade in Australia despite the depreciating AUD, as the two buildings are located next to each other and could benefit from the consolidation of retail space and optimal mix of tenants. Finally, we expect office rents to be stable. Passing rents at Ngee Ann City are c.S$9.50 psf/mth, and some transacted rents have breached the S$10 psf/mth level. With c. 34% and 36% of gross office rentals due to expire at Wisma Atria and Ngee Ann City respectively, there may yet be some upside through positive rental reversions.
Recommendation
Maintain BUY, TP S$0.94. Going forward, we believe that 2H13 will reflect a stronger set of results as reversions from the master leases in Ngee Ann City, Starhill Gallery and Lot 10 begin to contribute on a fullquarter basis. We should also see greater clarity on how the newly fitted out tenants in Wisma Atria are performing. As c.80% of leases in Wisma Atria have a gross turnover (GTO) component, we could see some upside from that aspect in terms of higher tenant sales. We have adjusted our TP slightly to account for a larger share base (from YTL’s CPU conversion) and a higher risk free rate of 2.8% (from 1.8%). Maintain BUY, TP S$0.94.
CMT – DBSV
Journey to the West
- 2Q13 results in line
- AEI works at Bugis Junction to complete by 4Q13
- Management in the midst of repositioning Jurong malls
- Maintain HOLD, TP S$2.20
Stable performance. CMT recorded 2Q13 revenue of S$183m (+10% y-o-y), NPI of S$126m (+12%) and distributable income of S$88m (+10%), translating to 2Q13 DPU of 2.53Scts, and 4.99Scts for 1H13. This increase was attributable to contribution from the completion of its AEI activities at JCube, Bugis+ and The Atrium@Orchard, offsetting weaker rental income from IMM and Plaza Singapura due to ongoing AEIs and the loss of an anchor tenant respectively. Portfolio reversions remained stable at c6.4%, in line with trends for the past 3 years. Occupancy edged up to 99.1%. CMT also reported a slight uptick in valuations for its properties, owing to a c15bp compression in cap rates for certain retail malls.
Further works to enhance portfolio. Bugis Junction has begun AEI works after anchor tenant BHG returned c.70k of NLA. The Manager intends to reposition and replace the space with specialty shops which are expected to yield higher rental income. Phase 1, which comprises c.50-60% of the AEI space, will be completed in 4Q13, and management is planning to launch Phase 2 after Chinese New Year and complete by 3Q14.
Repositioning its malls in Jurong Gateway region. Management has taken steps to minimise potential sales cannibalization effect of JEM (which opened in June) on JCube and IMM. Going forward, management has plans to differentiate JCube as a sports and entertainment centre and IMM as a outlet mall. The latter successfully completed its repositioning as an outlet mall in June, and to date there are 51 outlet shops within the mall. Westgate, which is due to open by year end, will add c.402k sqft of retail space to the Jurong area, bringing total new supply in the area to nearly 1msf. Whilst we are optimistic that the malls will benefit from the Jurong Gateway clustering effect, we are wary of the supply overhang in the short term, which could dilute tenant sales and footfalls. However, this should stabilise with population growth within the vicinity and the completion of new offices in the coming quarters.
Maintain HOLD, TP S$2.20. We have adjusted our TP down as a result of increasing the risk free rate assumption to 2.65% from 1.8%, and increasing long term cost of debt from 3.2% to 3.5%, as per guidance from management. Given limited upside, our HOLD call is maintained. CMT offers forward yields of c5.0-5.6%.