Cambridge – OSK/DMG
After meeting with the management of Cambridge Industrial Trust (CIT) recently, we believe FY12 would be one of the most exciting years for CIT since listing in FY06. With the acquisitions of 4 properties, DPU is expected to grow by c.12% in FY12. Although consensus expects a slowdown in Singapore’s economy in FY12, we believe the rental rate of industry property will remain resilient, following our sensitivity study of industrial rental rate vs Singapore’s PMI. Maintain BUY as CIT is currently trading at an undemanding spread of 8.2% vs pre-crisis spread of 4.6%.
Forecasted FY12 DPU to increase by c.12% amid hard times. During Jun-Jul 2011, CIT completed three acquisitions, namely, 4 & 6 Clementi Loop, 60 Tuas South Street 1, and 5 & 7 Gul Street 1. As indicated by management, the acquisition of the 4th property at 25 Pioneer Crescent will be completed by 1Q12. These acquisitions are expected to contribute 0.2-0.3 S¢ in DPU for FY11-FY12 respectively. Concurrently, the completion of a BTS project at Tuas by early 3Q12 is expected to bring in a high NPI yield of c.15%. while the property at 25 Pioneer Crescent is expected to bring an additional gross yield of 8% to the group.
Industry rental rate resilient despite slowdown in economy. Although Singapore’s economy is expected to soften in FY12, our sensitivity study of industrial rental rates vs Singapore’s PMI demonstrated that the industrial rental rate will most likely remain flattish (assuming the global economy will not fall into another economic crisis as the one that took place in FY08) during this period.
Maintain BUY with TP of S$0.595. Although CIT’s FY11 DPU is expected to fall by c.13% YoY; due to the enlargement of share base as a result of April rights issue, the contribution from abovementioned projects should allow CIT’s DPU to pick up in FY12. We maintain our BUY call with TP of S$0.595 (COE: 10.1%, TGR: 1.0%) posting an potential upside of 22.7%.
CDL H-Trust – DBSV
More than meets the eye
• “Debunk” street’s view that CDL H’s portfolio RevPAR has been lagging industry peers in recent quarters
• Positive data points; we remain cautiously optimistic on prospects in 2012
• Maintain BUY and DDM-based TP of S$1.85
Not as bad as what street thinks. The recent stellar hotel performances from the two integrated resorts in 2Q/3Q 2011 have been eye catching. Contributing close to 9.8% of Singapore’s inventory, we believe these numbers could have skewed recently reported tourism statistics. Stripping out contributions from the two IRs, it is clear that CDL HT’s hotels operational data (in terms of occupancy levels, RevPAR) continue to remain above its industry peers rather than underperforming as thought previously by most on the street.
Corporate updates have been positive to-date. While the 2 IRs continue to attract occupancies of over 90%, even at above than industry’s room rates, we could potentially see hoteliers turn more confident about holding rates firm rather than drop rates going forward. With the potential spillover demand from the recent holiday season and an expected strong line-up of conferences and events, we estimate total visitors to continue growing at a rate of 4-7% y-o-y. Unlike an expected flattish industry performance, CDL HT is projected to deliver 0-5% y-o-y growth in RevPAR, leveraging on the recently completed refurbishment program (Orchard Hotel and Novotel Clarke Quay) and full year contribution from Studio M hotel.
Maintain BUY and DDM-based TP of S$1.85. We maintain our Buy rating in anticipation of potential earnings surprise, hinging on faster than expected recovery in the global economic environment. In addition, given its relatively low gearing of 26% and an implied yield of close to 5.7%, CDL HT stands ready to acquire hotel assets opportunistically which we believe will be accretive to unitholder distributions.
REITs – BT
Reits outshine STI; healthcare plays lead
THE majority of Singapore real estate investment trusts (Reits) outperformed the Straits Times Index (STI) last year, data from the Singapore Exchange (SGX) shows.
Of the 22 Reits here, 17 performed better than the benchmark index – which ended down 17 per cent in 2011 – with healthcare-related plays leading the way.
In price performance terms, Parkway Life (PLife) Reit – which holds Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital – floated to the top of the chart with an 8.5 per cent gain in its unit price last year.
PLife Reit said last year that it remained positive on the long-term prospects of the regional healthcare industry, given the rising demand for better-quality private healthcare services that is being driven by growing affluence and a fast-ageing population.
Its sector peer, First Reit, was ranked second, with a price return of 7 per cent.
The remaining 20 Reits, of which 15 did better than the STI, posted negative price returns in 2011.
Top loser was K-Reit Asia, which saw its unit price slump 36.2 per cent. The office property trust underwent a 17-for-20 rights issue to raise about $976 million to fund its purchase of Keppel Land’s controlling stake in Ocean Financial Centre.
The next poorest performer was CapitaCommercial Trust, which ended the year with negative returns of 29.7 per cent.
Taking into account price and dividends, First Reit – Singapore’s first healthcare Reit – provided the highest total return of 16.3 per cent in 2011. PLife Reit was ranked second with 14.4 per cent gains in total return terms.
First Reit offered a dividend yield of 9.3 per cent – the highest among the 22 Reits – while that of PLife Reit was 5.9 per cent.
Others that emerged stronger in total returns include Mapletree Industrial Trust and Cache Logistics, which offered gains of 6.4 per cent and 7 per cent, respectively.
K-Reit Asia was also the biggest loser in total return terms, with a 32.8 per cent drop in returns. It was followed by CapitaCommercial Trust, which registered a 25.9 per cent fall in total return terms.
CLT – OCBC
POISED TO REPEAT ITS SUCCESS
•Expecting good 4Q results
•Earnings to stay resilient
•Recent government measures are Positive
Expecting another round of good performance.
Cache Logistics Trust (CACHE) is due to release its 4QFY11 results after the trading hours on 18 Jan. We project that the REIT would rake up 10.8% and 6.4% YoY growth in its gross revenue and DPU respectively, bolstered by additional rental income from its recent acquisitions. This would bring the total FY11F DPU to 8.2 S cents, representing an attractive yield of 8.4% versus the industry average of 7.4%.
Limited impact from market slowdown.
While the Singapore economy growth is anticipated to moderate in 2012, including the prospect of a technical recession in 1Q, we believe the impact to its financial performance is likely to be limited. The REIT offers one of the highest earnings visibility and stability, due to master lease arrangements with Sponsor CWT and C&P Holdings. The weighted average lease to expiry (WALE), for example, was at 4.9 years as at 30 Sep, which compares favourably to its peers’ median of 3.5 years. Moreover, its leases usually encompass locked-in annual rental escalation of 1.5-2% and a triple-net lease structure for the contracted lease term. This limits the downside risks from a market downturn while ensuring organic growth for CACHE.
Government measures likely a positive.
Pertaining to the recent steps taken by the Ministry of Trade and Industry (MTI) to better meet genuine end-user industrialists’ needs and to quell increasing speculation in the industrial space, we are of the view that it will be beneficial to CACHE. We have earlier noted in our strategy report dated 19 Dec 2011 that the high capital values of industrial properties in the current uncertain economic conditions are likely to make it harder for REITs to justify their potential acquisitions. With these measures, we expect better stability in the end-user demand and industrial property prices, as well as opportunities for asset injection. Maintain BUY rating and S$1.14 fair value.
Sabana – Phillip
Company Overview
Sabana REIT is a Singapore-based REIT with a mandate to invest in income-producing industrial real estate and real estate-related assets in Singapore and Asia with compliance to Shari’ah investment principles.
• Acquisition of 6 Woodlands Loop at $14.8m
• DPU accretion resulted from debt financing
• Incorporated payout ratio of 94.0% from 2013 to 2015
• Maintain Buy recommendation but with target price cuts to $1.04
What is the news?
Sabana REIT wrapped up 2011 with a total of five properties. The 3-storey general industrial building located at 6 Woodlands Loop was its latest acquisition completed on 15 December 2011. The single-tenanted property is strategically located along Woodlands Loop and is easily accessible by Bukit Timah Expressway (BKE) and Seletar Expressway (SLE). The permissible plot ratio of the site is not completely optimized to its potential and may provide addition and alternation opportunity should the need arisen from the existing tenant.
Upon completion, a lease term of three years commencing from the date of completion of the property will be entered with the existing tenant, MMI Holdings Limited. As the contractual rents are below the market rate, up to a maximum of $958,058 rental income support will be supplemented for a period of three years under the Sales and Purchase agreement.
How do we view this?
DPU expects to improve by 0.06 cents as debt financing is employed to purchase the property asset. While the gearing ratio is expected to increase to c.34.2% upon completion based on the announcement. This leaves Sabana REIT with a debt headroom of c.$110m given 40% leverage.
Investment Actions?
Sabana REIT’s distribution policy is to distribute 100% of its taxable income and tax-exempt income (if any) till 31 December 2012 and thereafter to distribute at least 90%. We therefore assume a payout ratio of 94.0% from 2013- 2015 in order to maintain stability of distributions while retain some earnings for capital expenditure. To reiterate, we also assume occupancy to drop in 2013 as the head tenant may not renew the contract when the bulk of the master leases expired. Hence, FY13 DPU will slide down but recover in FY14 and FY15. Above assumptions trim our target price to $1.04 and it still warrants a buy call with a potential upside 18.2% excluding dividend yield.