CDL H-Trust – Phillip
Economic slowdown has been priced in
• 3Q11 revenue $36.4m, NPI $34.0m, distributable income $26.6m
• 3Q11 DPU of 2.77 cents
• Trim FY12/13 DPU by 1.6-2.5% and raise cost of equity to 10%
• Cut target price to S$1.470 but maintain Hold
3Q FY11 results
Gross revenue of $36.4m and net property income (NPI) of $34.0m was registered in 3Q11, a double-digit growth of 15.2% y-y and 12.7% y-y from the corresponding period last year. Distributable income (with a reduction of retained earnings for working capital) was up 9.9% y-y to $26.6m. This presented a DPU of 2.77 cents for 3Q11, bringing 9M11 dividend payout to 8.11 cents. This constitutes 72% of our FY11 estimates. Excluding Studio M Hotel, average occupancy rate (AOR) for Singapore Hotel fell by 2.1%-pts to 89.5% in 3Q11 compared to the year before. Average daily rate (ADR), a laggard relative to AOR, turned in $236 (+8.8% y-y), and boosted the revenue per available room (RevPAR) to $211. This was the highest RevPAR recorded since last high of $222 in 2Q08, prior to the global financial crisis. On the retail front, Orchard Hotel Shopping Arcade posted 97.4% in occupancy with an average monthly rental rate of $7.20 per sq ft. CDL HT's overseas Hotels in New Zealand and Australia saw NPI rose in the region of 4.0-7.9% and contributed 19.8% to the total NPI in the reporting quarter.
Moderating the prospect of Singapore hospitality sector
In view of the turbulences in the western countries, we examine two possible scenarios – 1) base-case (global economic slowdown) and 2) pessimistic (double-dip recession) – that might occur in 2012. In our base-case scenario, we expect tourist arrivals for 2012/2013 to grow at a slower compound rate of 2%/6% respectively as opposed to Singapore Tourism Board (STB)'s CAGR of 7.9% based on the forecasts of 17 million visitors by 2015. With steady pipeline of 3,274 and 2,536 rooms to be added to the hotel inventory over the next two years, occupancy is expected to drop to 83% in 2012/13. RevPAR for CDLHT is likely to slip to lower region of $190. In our pessimistic scenario, we expect annual tourist arrivals to fall 8% in 2012 and recover 10% in 2013. Occupancy is expected to take a plunge to 75%/78% and translate to lower RevPAR of $146/$156 in 2012/13.
Valuation
Given our base-case scenario, we trim our FY12/13 DPU by 1.6-2.5% in consideration of milder growth in tourist inflows. To account for increased macro-economic risk, we raise our cost of equity to 10% and slash our target price to $1.47. We will continue to monitor the market condition and reserve our recession target price of $0.92 in the event of further deterioration in global economies. Based on previous closing price of $1.52, we maintain our Hold recommendation.
MIT – DBSV
Resilient portfolio; healthy reversions
At a Glance
• 2Q12 DPU of 2.05 Scts in line (1H12 forms 51% of our FY12 estimates)
• Resilient portfolio; healthy reversions
• BUY maintained, TP revised to S$1.28 based on DCF
Comment on Results
2Q12 DPU of 2.05 Scts in line. Mapletree Industrial Trust (“MINT”) reported gross revenue and net property income of S$59.0m and S$41.1m respectively, 11% and 13% higher than IPO forecasts but in line with our estimates. The stronger performance was largely attributed to the contribution from its newly acquired JTC portfolio of 8 flatted-factories and 3 Amenity Centers. The new portfolio contributed c4.2% of gross revenues for the quarter. Excluding new acquisitions, MINT showed strong organic performance with its portfolio achieving higher rental and occupancy rates. As a result, distributable income was above IPO forecasts by 17%; translating to a DPU of 2.05 Scts. 1H12 results formed 51% of our FY12 estimates.
Resilient portfolio; healthy reversions. MINT’s diversified portfolio of industrial properties remained resilient achieving higher average occupancies 94.5% in 2Q12 ( vs 94.3% in 1Q12) and slightly higher portfolio average rental of S$1.54 psf/mth. After the coming off of its rental caps, average gap between renewals and new leases have narrowed and remained 10-40% higher than passing rents. Retention rates remained healthy at 79.4%. Looking ahead, performance should be relatively stable given that only c8.2% of topline is up for renewal over the rest of FY12. To improve portfolio WALE (currently at 2.7 years) and income certainty for the REIT, the manager looks to offer tenants longer-term leases with staggered rental escalations.
Healthy financial metrics . Balance sheet remains strong, with a gearing of 39.2% and an interest coverage ratio of over 6.4x. Its weighted average debt tenor remains 2.7 years with evenly spaced out maturities over the next 5 years.
Recommendation
BUY call maintained. Forward yields of 6.9-7.4% remain attractive in our view, given a diversified portfolio and strong sponsor backing. TP of S$1.28 offers total return of 18%.
MIT – CIMB
Robust 2Q
2Q12 marked the first quarter since the expiry of rental caps on MINT’s flatted factories. Positives were sustained occupancy and stronger rental reversions. Leasing and organic-growth potential
remains strong given an under-rented portfolio.
2Q12/1H12 DPU is in line with consensus and our estimates, at 26%/ 51% of FY11. We trim interest costs but keep our DDM-based target price (discount rate: 8.6%). Maintain Outperform.
Stronger rental reversions
We continue to see strong organic growth potential from an under-rented portfolio. Positives were stronger rental reversions in 2Q from the expiry of rental caps at end-Jun. While portfolio retention fell to 79% from 89% in 1Q, this was largely in keeping with management’s expectation, given its push on rents after the expiry of rental caps. Portfolio occupancy also crept up to 94.5% from 94.3%.
Continued resilience expected
Leasing enquiries remain strong while arrears (deemed typically a sign of distress among tenants) are still healthy. While there has been a slowdown in enquiries from the electronics sector given weakness in the sector, this slowdown is not new. Stronger demand from biomed and precision engineering etc. also compensates. To enhance its portfolio resilience and visibility, management is looking at introducing packages with longer lease tenures and rental step-ups.
Asset leverage within comfort zone
DPU should continue to benefit from low all-in funding costs of 2.2%. While asset leverage is fairly high at 39%, this is within management’s comfort level of 45% (given stability of its portfolio) with FY12 maturing debt well-supported by existing lines of credit.
Suntec – DBSV
Smart and prudent approach
At a Glance
• 9M DPU makes up 80% of our full year estimates
• Forward locked in office rents to extend earnings visibility
• Re-rating catalyst from impending AEI works at Suntec Mall and possible divestment of CHIJMES
• Maintain BUY at a lower TP of S$1.53
Comment on Results
Better than expectations. Suntec Reit gross revenue rose 7.4% yoy to S$67.9m in 3Q. However, NPI fell by 5.6% to S$47.8m due to higher property taxes and an enlarged portfolio following the acquisition of 51% stake in Suntec Convention Centre. The decline was offset by a higher contribution from the one-third stake in Marina Bay Financial Phase 1, lifting distributable income by 22% to S$56.4m or DPU of 2.533 Scts. 9M DPU makes up 80% of our full year estimates. Our estimates are tweaked higher to account for the better YTD performance, resulting in a 2-3.5% increase in FY11-12F DPU estimates.
Forward locked in office renewals and impending AEI works at Suntec Mall are positive moves. Office occupancy stabilized at 98% as the group renewed c200,000 sf of office space including UBS’s lease (>100,000sf). This brought down the office leases to be renewed in FY11/12 in terms of NLA from 22% a quarter ago to 13%. We view this strategy to forward lock in tenants as a positive move in view of the global macroeconomic uncertainties. However, renewal rents excluding those leases with rental caps were at an average of S$8.4 per month, slightly below the asking rents in the vicinity. Meanwhile, occupancy for the retail portfolio stood at 97.6%, with vacancies largely coming from Suntec City Mall (96.5%). In our view, this could be due to the planned AEI works at Suntec retail mall. If materialize, this would help unlock the mall’s value in the longer term.
Recommendation
Maintain BUY at a lower TP of S$1.53. Gearing is currently at 40%. We think the divestment of Chijmes would be a re-rating catalyst for the reit as the proceeds could be deploy into better yielding opportunities, as well as strengthen its balance sheet. Maintain BUY with a lower DCF-based TP of S$1.53 as we rolled our numbers forward into FY12 and moderate our rental growth outlook.
Suntec – OCBC
Growth despite weaker operating trends
DPU above expectation. Suntec REIT reported 3QFY11 gross revenue of S$67.9m, up 7.4% YoY, due to consolidation of S$7.5m revenue from Suntec Singapore, as the group raised its stake to 60.8% from 20.0% in Aug. Excluding this, gross revenue would be 4.4% lower YoY due to negative rental reversions and lower occupancy rates at Suntec City. NPI, on the other hand, fell by 5.6% YoY on higher operating expenses and absence of property tax provision reversal versus 3QFY10. Nevertheless, distributable income increased by 21.9% YoY to S$56.4m. This was mainly due to the inclusion of MBFC Properties, though partially offset by lower contribution from ORQ. DPU for the quarter stood at 2.533 S cents, up 1.2% YoY and flat QoQ. Together with 1HFY11 DPU of 4.92 S cents, 9M DPU totaled 7.453 S cents. This is above both our and consensus forecasts, which represents 80.1% and 77.6% of our and consensus full-year figures, respectively.
Weaker operating trends. Office portfolio occupancy was weaker at 98.6%, as compared to 99.2% in 2Q. This was mainly dragged down by Suntec City office, which saw its occupancy eased from 99.5% in prior quarter to 98.0%. Leases secured for the quarter, we note, were also lower at an average rent of S$8.41 psf pm (S$9.28 in 2Q). As for its retail portfolio, occupancy also slid slightly from 97.7% in 2Q to 97.3%. More notably, committed average passing rents at Suntec City continued to fall, marking its sixth consecutive quarters of decline since Mar 2010 to S$10.10 psf pm (down c.7.3% over the period). As at 30 Sep, a balance of 12.7% of office and 31.7% of retail leases are due to expire in FY12.
No details on AEI yet. Management had previously mentioned that it may be looking at possible asset enhancement initiatives (AEIs) at Suntec City. However, it has yet to give details on this front. We note that the group’s
gearing ratio was at 39.9%, with an average all-in financing cost of 2.82% and weighted average term to expiry of 2.92 years. While there are no major refinancing requirements till 2013, we believe an AEI, especially a considerable one, may entail a drawdown of more debt. This is in addition to our cautious view that a fast deteriorating macro condition, if it happens, may depress rents and property capital values, hence resulting in higher-than-desirable gearing level. We are currently putting our Hold rating and S$1.59 fair value UNDER REVIEW due to a change in analyst coverage.