StarHill Global – DBSV
Riding on positive reversions
• Results in line, lifted by SG portfolio
• Positive reversions, new acquisition, Malaysia stepping up rent and some possible interest savings to drive earnings
• Maintain BUY at a higher S$0.89 TP.
Highlights
4Q12 results in line. 4Q12 gross revenues and net property income grew c.2-3% q-o-q and y-o-y. Higher income from its SG properties helps more than offset forex losses (Yen and AUD weakened by 10% and 3% respectively) and weaknesses in Chengdu performance (-13.9% y-o-y). The trust retained S$0.6m for working capital this quarter, putting YTD amount at S$1.4m. Taking that into account and netting off CPU distribution, 4Q12 DPU rose by 12% y-o-y to 1.13cts. Full-year DPU came in at 4.39ct, which is on line with our forecast. NAV rose marginally by 2% to S$0.96 as the revaluation gains for its SG and Malaysia property were eroded by forex losses. Cap rates used for SG portfolio remained steady at 5.25% and 4.25% for retail and office assets, respectively
Our View
Continue to be lifted by positive rental reversion. Wisma Atria’s retail sales growth was +23% q-o-q, 33% y-o-y, with a healthy footfall (+15% q-o-q, -2% y-o-y) post AEI work. On a full-year basis, retail sales and shopper traffic hit S$176m translating to S$115 psf of retail sales and occupancy cost of 28%. Going forward, earnings will be driven by (i) positive rental reversions for its SG properties as the gap between expiring and recent transactions narrowed. About 26% of its office leases in terms of NLA is due for renewal in 2013, and passing rent of S$8.20 psf pm is still below current signing rent of S$9.50. Meanwhile, the average monthly rent for Wisma’s retail is at S$32 psf, still below the asking rent of S$35 – $70 psf. (ii) 7% upward reversion of rent in June 2013 for its Malaysia Property (iii) an additional c.$3.8m p.a. of net income its recent Perth (Plaza Arcade) acquisition from 2Q onwards.
Interest savings and inorganic growth possible. While, 57% of its debt was up for refinancing, we understand talk is underway to refinance and break it into with smaller tranches with differing maturities. SGREIT is looking to replace them with unsecured loans which could increase the current unencumbered ratio to 78%, from 41% currently. This may potentially trigger a rerating of its MTN notes (current triple B-). Gearing remains healthy at 32%, providing the trust ample ammunition for acquisitions. We have not assumed any acquisitions but have prudently assumed 100% conversion of its CPU as these are now trading in-the-money.
Recommendation
Maintain BUY at a higher S$0.89 TP. Our TP is raised to $0.89 as we factor in the acquisition of Perth Arcade, higher reversionary rents for SG portfolio and assume conversion of CPU. Upside could come from one-off accumulated arrears in rents from Toshin’s lease and upwards rent review due in Jun13 (not factored in yet) or new acquisitions.
CDL H-Trust – DBSV
Room for growth
- 4Q12 results in line
- Challenges in operating environment in the near term
- Acquisitions to boost earnings performance; with more headroom, management remains on the hunt for more
- BUY, TP S$2.11 maintained
Highlights
4Q12 results in line. Gross revenue and NPI declined marginally by 1.4% and 0.2% y-o-y to S$38.3m and S$35.6m respectively. Performance of its Singapore hotels was flattish (excluding Studio M Hotel) to S$205/night (flat y-o-y, -1.5% qo-q) and while earnings from its Australia hotels were weaker due to the weaker AUD-S$ exchange rate. As a result, income available for distribution (after retained income) of S$ 28.1m was 0.9% lower y-o-y, translating to a DPU of 2.90 Scts ( -1.4% y-o-y).
Our View
Challenges in the near term; new competing room supply to limit significant hikes in room rates. We noted that occupancies for its Singapore portfolio remained fairly firm at 89.3% but the average daily rate was marginally lower at S$229/night (-1.3% y-o-y) The performance of its hotels was also slightly weaker due to a softer banquet business (which typically peaks in 4Q) but Novotel Clarke Quay hotel continue to be the top performer with a 11% y-o-y growth in revenues given its suite of renovated rooms. Looking ahead to 2013, management remains cautious on the near term outlook and expects the year to start off weaker with corporate bookings coming in stronger post the Chinese New Year in Feb. Looking ahead, with new incoming hotel supply over the coming quarters (4,138 rooms, +8% of current supply), we believe that further room rate hikes is likely to be limited (we are forecasting RevPAR growth of +3% in 2013).
Angsana Velavaru acquisition to boost performance; further acquisitions possible. The acquisition is expected to be soon and will contribute positively to earnings in the subsequent quarters. Gearing post acquisition remains conservative at c.29%, still below management’s comfortable level of 35%. Acquisitions are a likely feature and management remains watchful for opportunities and Japan, remains a likely target.
Recommendation
BUY maintained, TP S$2.11. Guidance for payout ratio to remain at 90% for FY13F and we have adjusted our numbers slightly to reflect this. CDREIT offers an attractive 4% CAGR in DPU over FY13-14F, with potential upside if further acquisitions are executed on. BUY, TP S$2.11. CDREIT offers a prospective 5.9-6.2% yield.
StarHill Global – OCBC
CLEAR GROWTH DRIVERS
- 4Q12 results within view
- Strong growth from local portfolio
- Not resting on laurels
Robust growth in DPU
Starhill Global REIT’s (SGREIT) 4Q12 results came in within our expectations. NPI grew by 2.9% YoY to S$37.5m due primarily to strong contribution from its Singapore portfolio. DPU rose at a faster pace of 11.9% to 1.13 S cents on the back of lower interest costs and lower tax expenses. This set of results almost coincides with our quarterly NPI forecast of S$37.1m and DPU projection of 1.10 S cents. We note that ~S$0.6m from the distributable income will be retained for working capital purposes. For the full-year, DPU amounted to 4.39 S cents, up 6.6%. This translates to a FY12 DPU yield of 5.2%.
Local portfolio overcame softness from overseas
SGREIT’s Singapore properties contributed 63.0% to 4Q revenue, higher than the 62.3% contribution seen in prior quarter. This was partly fuelled by strong performance from Wisma Atria’s retail segment, which saw its NPI jump 23.5% to S$10.3m amid positive rental reversions, and also a 10.5% growth in Ngee Ann City office segment on higher occupancy and higher secured rentals. As a result, the strength from the local scene more that offset the weakness seen across all its overseas assets: Japan (-4.7% in NPI due to weaker JPY), Chengdu (-13.9% due to higher competition and weaker retail market) and Australia (-9.0% due to weaker AUD and vacancies between tenancies).
Maintain BUY
Looking ahead, SGREIT is exploring the possibility of an asset redevelopment of Plaza Arcade and David Jones Building to reap any potential synergies between the two buildings. On its capital management front, management is in active discussions with banks to refinance its term loan maturing in Sep, which we believe may lead to improved debt profile and interest savings. SGREIT also updated that valuers’ work on the rental valuation for Toshin master lease at Ngee Ann City is expected to be finalised by 1Q13. We now factor in Plaza Arcade acquisition and roll our valuations to FY13. This bumps up our fair value to S$0.95 from S$0.84 previously. Maintain BUY.
CDL H-Trust – CIMB
Decent 4Q but muted guidance
Performance was decent amidst headwinds from weaker corporate travels. Given the upcoming room supply and tighter corporate travel budgets, management guidance remains fairly muted. We see little room for outperformance at current levels.
4Q/FY12 DPUs were slightly below street and our estimates, forming 26/98% of our FY12 forecast. The slight deviation came from higher interest costs as operating performance was in line. We cut DPUs on higher interest cost assumptions, hence our lower DDM-based target price (discount rate: 8.1%). Maintain Neutral.
Decent performance amidst headwinds
4Q12 DPU (still on unchanged 90% payout) was down 1% yoy. NPI was flat yoy as stronger performance from Grand Copthorne Waterfront, Novotel Clarke Quay and its New Zealand asset offset yoy declines on its other assets. Local assets were hit by weaker corporate travels, while fixed rents from Australian assets suffered translation loss arising from the weaker A$. Locally, RevPAR was flat as stronger occupancy (+0.8% pts yoy to 89.4%) offset weaker ARR (-1.3% yoy to S$229/day).
Muted guidance
Management guidance was fairly muted, given concerns over tighter corporate travel budgets and room supply (+8%) in 2013. For 1Q13, management expects performance to be affected by the absence of the bi-annual Singapore Air-show and a later Chinese New Year this year, which could affect the momentum in Feb. So far, RevPAR growth is in line at 1% yoy for the first 27 days of 2013 (note the earlier Chinese New Year in Jan 2012). Corporate renewal rates have thus far been lifted by an average of 2-5% yoy.
Maintain Neutral
Valuations are not overly demanding at 6% yield and 1.2x P/BV. However, we maintain Neutral in view of the muted local organic growth outlook. We will turn more positive on signs of improved acquisition momentum and a turnaround in the local hospitality outlook.
A-HTrust – DBSV
Softness Down Under
- 3Q12 results in line
- Australian operations remain under pressure; China hotels, the near-term earnings driver
- Downgrade to HOLD, TP S$1.03
3Q13 results in line.
Ascendas Hospitality Trust’s (A-HTRUST) revenues of S$51.4m was 2.5% below forecasts as its Australian hotels continue to face challenging prospects in a soft operating environment (RevPAR A$129/night, – 7.5% vs forecast) while a weak JPY-S$ marginally impacted the performance of its Ariake Hotel. The strong performance came largely from China (Novotel & Ibis Beijing Sanyuan) which achieved a RevPAR of Rmb378/night, +1.2% y-o-y. Net property income, however, improved by 4.1% against forecasts due to stringent cost measures. Thus, distributable income of S$12.5m (+3.6% above forecasts) translates to a DPU of 1.55 Scts (1.77 Scts after sponsor waiver).
Outlook remains mixed; Australian operations under pressure.
The refurbishment and rebranding exercise that is ongoing at its seven Australian hotels remains on track for completion by Aug13 (1QFY14). We note that occupancy rates have slipped slightly to 79.5% in the midst of a tough operating climate. We note that the industry continues to price rates competitively and thus, A-HTRUST hotels have to follow likewise in order to maintain occupancies. Nevertheless, upon completion in 2H13, we expect the new Accor-branded Australian portfolio to continue to reap the benefits of its refurbishment exercise through room rate hikes and improved margins. Its China hotels, namely Novotel & Ibis Beijing Sanyuan, are expected to continue benefiting from the robust domestic demand for travel into Beijing.
Downgrade to HOLD with revised TP of S$1.03. Our TP is nudged slightly upwards to S$1.03 as we reduce our discount rates but downgrade to HOLD, given limited upside to our TP objective. Upside surprise is likely to hinge on acquisitions that we have not factored in. The stock offers yields of 7.3-7.6%.