ART – DBSV
Targets in sight
• Pre-emptive fund raising suggests potential acquisitions
• S$300m acquisitions assumed; re-rating catalysts to hinge on clarity of potential targets
• BUY, TP raised to S$1.53
Pre-emptive placement boosts acquisition kitty by S$150m. Ascott Residence Trust (Ascott REIT) recently completed a private placement exercise, which boosted its acquisition kitty by an additional S$150m. The issue price for the new units at $1.305 implies a 4.6% discount to the adjusted VWAP on 28 Jan 13 (placement agreement entered into with the placement agents) and a c3% discount to its latest reported NAV/share. A pre-emptive exercise with no targets identified at this point, with proceeds to be utilised across a myriad of uses – potential acquisitions, asset enhancements or debt repayment.
Awaiting deployment of proceeds, assuming acquisitions of S$300m in forecasts. We believe that proceeds will be utilised towards value accretive and yield enhancing acquisitions. Management is reviewing opportunities in the region and has previously alluded to be focusing on higher growth markets within Asia. We now factor in S$300m worth of acquisitions (@ 6.0% yield) in our forecasts, assuming a target post acquisition gearing of c39%. We estimate that every additional S$50m in acquisitions will raise gearing by 1 ppt, and DPU estimates and our TP by c.1%-1.5%.
Acquisition driven re-rating, BUY, TP revised to S$1.53. The stock price has declined c5% post placement, which we believe is due to the lack of clarity in acquisition targets but expect management to execute opportunistically soon. While slight dilution in DPU is expected prior to actual deployment of funds, we expect this to be compensated by a higher growth rate from FY14F onwards. BUY, TP raised to S$1.53 after factoring in acquisitions.
CLT – AmFraser
Acquisition engine running on full steam
Flexing its muscles on acquisitions. Cache announced that it has entered into a call option agreement with industrial developer Precise Development (PDPL) to acquire Precise Two, a newly‐completed three‐storey fully ramp‐up warehouse with a gross GFA of approx. 284,381 sq ft. Purchase consideration for the property is around S$55.2mil. Subject to attaining regulatory approval from JTC Corporation, the acquisition is expected to be completed in April 2013.
Beefing up its competitive position in the logistics space. Cache’s planned acquisition of Precise Two is, in our opinion, hugely complementary to its existing portfolio strengths. Boasting approx. 23% market share of Singapore’s ramp‐up logistics warehouses, Cache’s proposed acquisition of Precise Two distinctly accelerates its competitive edge. Given Precise Two’s quality technical specifications such as heavy floor loading of 50kn/m2 for the ground floor, strategic location in the Jurong Industrial Precinct as well as its proximity to major expressways PIE and AYE, the deal, should it go through successfully, would certainly be a major feather in its cap.
Harvesting diversification rewards. Upon completion of the acquisition, Cache and PDPL would enter into an agreement to which Precise Two would be leased back to PDPL. As the master lease agreement provides for a lease term of six years with a renewal option for an additional six years, the acquisition would strengthen Cache’s lease expiry profile and reduce its asset concentration risk on CWT Commodity Hub. CWT Commodity Hub’s revenue contribution is estimated to fall from 37.8% to 36.5% following the acquisition of Precise Two. Another plus for Cache would be a reduced reliance on master lessees CWT and C&P for rental income.
Yield‐accretive. We assume that the acquisition of Precise Two would be financed en
FE-HTrust – OCBC
RESULTS IN LINE FOR 1 AUG-31 DEC 2012
- Results as expected
- Upscale hotels facing a squeeze
- Maintain HOLD
First results since IPO
Far East Hospitality Trust (FEHT) reported its first results since listing (for the financial period 1 Aug-31 Dec 2012) that were generally in line with our expectations. While gross revenue, at S$42.2m, was 0.7% lower than the pro-rated forecast in the prospectus, net property income of S$38.8m was 0.2% higher than the forecast as a result of lower operating expenses. Active management of finance costs and other trust expenses helped to lift its income available for distribution 4.5% above its forecast to S$33.6m.
Weak serviced residence revenue
Gross revenue from hotels was 0.6% higher than forecast at S$33.9m; stronger rental income from commercial spaces and an increase in the meetings and banquet business (e.g. at Changi Village) helped to make up for RevPAR of S$171 being 1.7% lower than forecast. Gross revenue from serviced residences (SRs) was 5.7% less than forecast at S$8.3m due to corporate cutbacks in 2H12. Corporate accounts that were lost during the previous AEI were not satisfactorily replaced. The SRs are trying to diversify away from banking/financials sector clients and are looking more at other services and oil and gas. Valuation of the portfolio increased by 0.9% to S$2.16b.
Mid-tier hotels fairing better
Among FEHT’s properties, the upscale hotels such as Quincy are facing more pressure than the mid-tier hotels. An industry contact explained that 4-star hotels are being squeezed by 5-star hotels, which have been lowering rates. We understand that if FEHT buys the Rendezvous Hotel (298 rooms) from Straits Trading, the purchase is likely to take place around end 2Q13. Negotiations and due diligence are still ongoing and there is no assurance that the transaction will proceed.
Maintain HOLD
We update our assumptions for Oasia’s future RevPAR to levels closer in line with its peer hotels, and raise our fair value from S$1.02 to S$1.05. However, we maintain our HOLD rating on FEHT on valuation grounds.
HPH-Trust – Kim Eng
2012 DPU Spot-on; Yields Still Attractive
4Q results in-line, 2H2012 DPU as promised. Hutchison Port Holdings Trust (HPHT) reported 4Q results that were in line with our forecasts as FY2012 EBITDA came in at 2% above our estimates. As expected, 2H2012 DPU of HK27.19 cts /share was declared, bringing FY2012 DPU to HK51.24 cts, exactly in line with IPO prospectus projections. Although FY2013 will have a market-expected dip in DPU, HPHT remains a solid yield play (~8% p.a.) when put in perspective with S-REITs which currently trade closer to ~5% p.a. Reiterate BUY.
Deferred Capex again a hot potato. Questions were once again raised about the sustainability of FY2012 DPU levels going forward due to the fact that distributions were only achieved this year through a deferral of capex. Management stated that no further deferral of capex would be planned in 2013, and barring an extremely positive business environment, FY2013 DPU would come in at lower levels – something which is already expected by the market.
Volumes strong, HK leads the way. FY2012 volumes posted a credible 5% growth YoY: HK leading the way with a 5.4% YoY increase and Yantian posting a 3.9% YoY increase.
Outlook tentative, but more positive signs now. Management sounded more optimistic about the US and Chinese economies although this will be mitigated by the uncertain European situation. They also stated that the trend of an increasing proportion of megavessels will benefit HPHT’s ports given their natural deep water channels and scale.
Don’t miss the forest for the trees, reiterate BUY. We leave our forecasts largely unchanged, as we introduce our FY2015 estimates. As the market has already priced in FY2013’s weaker DPU, we advise investors not to miss out any further on a stock with sustainable yields of 7.6-8.3% p.a. Reiterate BUY, with DDM-based Target Price of USD0.93 implying a 20% total return including distributions.
CRCT – OCBC
ADDITIONAL AEI FOR MINZHONGLEYUAN
- 4Q12 results in line
- Fast-tracked AEI at MZLY
- Good LT outlook
NPI rose 6% YoY
CRCT’s 4Q12 results were generally in line with our expectations. Gross revenue climbed by 3.9% YoY to S$37.9m and net property income rose 6.0% YoY to S$24.2m. In RMB terms, gross revenue increased by 7.5% YoY to RMB195.4m and NPI expanded 9.9% YoY to RMB124.8m. Excluding Minzhongleyuan (MZLY), which is undergoing AEI, NPI grew 11.7% YoY to RMB117.9m. The portfolio was valued at RMB7.6b, up 4.7% from Jun 2012. According to management, capitalisation rates compressed by ~25 basis points.
CapitaMall Minzhongleyuan
The AEI at MZLY is being fast-tracked, with temporary closure of the mall from Jul 2013 to 2Q14, as opposed to completion by end 2014 as initially intended. Additional works planned include replacing the main atrium roof (which currently leaks during the rainy season), accentuating the facade and improving circulation with additional escalators. Tenants with frontage along Zhongshan Avenue will continue operations. Over 50% of tenants expressed leasing interest after AEI. Management estimates that FY13 DPU will be reduced by ~3% due to the accelerated AEI (assuming the other malls perform as they did in FY12). MZLY accounted for 5.3% of FY12 NPI. Estimated capital expenditure has been increased from RMB74m to RMB103m and expected return on AEI investment falls from 10.8% to 10.1%. Average rental rate of the mall is anticipated to increase ~35% versus pre-AEI.
Healthy financial position, positive LT outlook
CRCT has a good financial position, with gearing at 28.0%, and interest coverage ratio at 7.8x. The outlook for CRCT remains good in the longer-term. China’s 2012 GDP grew at 7.8% and the World Bank projects that GDP will grow by 8.4% in 2013. China has affirmed its target of doubling the country’s 2010 GDP and per capita income for residents by 2020 (7.2% p.a.).
Maintain HOLD
Increasing our longer-term growth rate assumptions, which were conservative previously, our fair value increase from S$1.56 to S$1.72 but we maintain our HOLD rating on CRCT on valuation grounds.