ART – BT
Ascott Trust posts 21% jump in Q3 DPU
Distributable income more than doubles, thanks to last year’s acquisitions
ASCOTT Residence Trust (ART) saw a more than one-fifth jump in third-quarter distribution per unit (DPU), with the 28 serviced residence properties added to its portfolio last year acting as a booster.
DPU for the three months ended September came to 2.23 cents, 21 per cent higher than the 1.85 cents per unit it paid out a year ago. The payout is also 10 per cent higher than ART had forecast.
Lim Jit Poh, chairman of ART’s manager Ascott Residence Trust Management Ltd (ARTML), said: ‘This is mainly attributable to the yield-accretive acquisition of the 28 serviced residences and the divestment of Ascott Beijing.’
Overall, distributable income for the July-September period more than doubled to $25.3 million, from $12.0 million the previous year.
ART completed the acquisition of the 28 properties in Singapore, Vietnam and Europe from its sponsor, The Ascott Ltd, for $969.6 million, and divested Ascott Beijing to Ascott last year. It later completed the divestment of Country Woods Jakarta, Indonesia.
These properties helped ART achieve a 57 per cent increase in revenue to $73.0 million, from $46.5 million the previous year.
Chong Kee Hiong, ARTML’s chief executive, said: ‘Ascott Reit’s revenue per available unit (RevPAU) achieved an 11 per cent increase this quarter as compared to 3Q2010, mainly attributable to the strong performance of the Singapore and United Kingdom serviced residences. RevPAU this quarter also outperformed the forecast by 6 per cent.’
ART added that it is evaluating the redevelopment options for Somerset Grand Cairnhill Singapore, although there is as yet no certainty of any proposed redevelopment materialising.
Mr Chong concluded: ‘For 2011, we expect to achieve better operating results as compared to 2010 and to deliver the forecast 2011 distribution of 7.74 cents.’
As at Sept 30, Ascott Reit’s international portfolio comprised 64 properties in 12 countries across the Asia-Pacific and Europe. ART’s units closed up half a cent at $1.01 yesterday.
K-REIT – BT
K-Reit’s OFC deal wins nod from Moody’s
S&P gives trust BBB rating, with ‘stable’ outlook
TWO rating agencies have issued new reports on K-Reit Asia after news this week that the office trust will acquire from parent company Keppel Land an 87.5 per cent interest in Ocean Financial Centre (OFC) – for a period of 99 years – for $1.57 billion.
Moody’s Investors Service on Wednesday changed its outlook on K-Reit’s ‘Baa3’ corporate family rating to positive from stable. And Standard & Poor’s Ratings Services (S&P) yesterday initiated coverage with a ‘BBB’ long-term corporate credit rating and a ‘stable’ outlook.
K-Reit has also proposed a 17-for-20 rights issue, which is expected to raise around $976.3 million, to part-finance the purchase. New debt of around $602.6 million will cover the rest of the cost.
Moody’s views the proposed acquisition as ‘mildly positive’ as it will result in a much strengthened property portfolio – although at the expense of somewhat higher leverage in the interim, said analyst Alvin Tan.
‘By acquiring another prominent commercial asset in Singapore’s central business district, K-Reit will substantially increase its total portfolio size by 52 per cent to $5.9 billion,’ Mr Tan said.
He added that although the scale of the transaction is substantial, the financing plan comprising a ‘balanced’ combination of debt and equity issue will result in only a modest increase in total debt/deposited property value to 41 per cent from 39 per cent.
S&P credit analyst Loy Wee Khim thinks that the proposed acquisition will enhance the trust’s business risk profile.
But Ms Loy added: ‘We believe K-Reit’s financial risk profile will weaken after it acquires OFC.’
‘In our base-case scenario, we expect the trust’s leverage (ratio of adjusted total debt to property portfolio value) to rise to about 42 per cent by the end of 2011. We, however, expect the ratio to decline to less than 40 per cent in the next one to two years and be in line with our expectations for the BBB rating,’ said Ms Loy.
S&P’s rating on K-Reit reflects the trust’s good quality assets, solid market position in the Singapore commercial space, and an intermediate financial risk profile.
But the trust’s limited geographic diversity – with 93.1 per cent of its assets located in Singapore – and an increased concentration of tenants from financial institutions temper these strengths, Ms Loy said.
K-Reit shares eased half a cent to close at 93.5 cents yesterday.
K-REIT – DBSV
Expected move, unexpected timing
• Results in line, 9M DPU forms 78% of our FY11F estimate
• OFC acquisition, a long-term strategic positive
• Limited near term sector catalyst; maintain Hold
In line with expectations. 3Q gross revenue and NPI declined by 14.5% y-oy and 16.3% to S$18.6m and S$14. 6m respectively due to the sale of KTGE Towers, which was partially offset by contributions from its Australian portfolio. The 4.6x increase in associates’ contribution (one-third stake in MBFC Phase 1) lifted distributable income to S$26.7m (+17.7%), translating to a DPU of 1.96Scts. 9M DPU forms 78% of FY11F estimates. Portfolio occupancy remained healthy at 98% with limited leases up for renewals for the remainder of the year.
Strategic long-term positive move. Separately, K-Reit announced that it is purchasing an 87.5% interest in Ocean Financial Centre (OFC) from Keppel Land at S$2.013b or S$2,600psf including an income support of S$170m until end 2016 or 4.25% cap rate. Net of the S$441.8m adjustments including ongoing construction of the carpark and retail podium and other transaction costs, total consideration will be S$1.578b. Although timing was a little unexpected, we see this deal as a strategic long-term positive for Kreit with the ability to deepen its presence in the prime CBD area, upgrade its portfolio quality as well as ensure a strong and stable income stream for unitholders through the long leases and a blue chip tenant base. Committed occupancy at OFC is at 79.6% with underlying monthly rent of $9psf. Kreit will fund the purchase with S$602.6m debt (38%) and S$976.3m (62%) of equity through a 17-for-20 rights issue at 85Scts per unit. Gearing is expected to head up to 41.6% post acquisition.
Maintain Hold. Our current numbers have not included the OFC acquisition. In terms of financial impact, the purchase is likely to be accretive, lifting our FY12 DPU estimates by 4.4% on a fully diluted basis while book NAV per unit could moderate to cS$1.19 based on Dec 2010 balance sheet due to the enlarged unit base. In terms of valuation, our current target price of $1.32 could potentially be diluted by 11%, after taking into account the expansion in issued units and factoring in the additional contributions as well as rolling forward into FY12 numbers. Post acquisition, we believe Kreit would gain more brand recognition and visibility as the largest prime commercial landlord and as the 3rd largest Sreit by asset size. However, current global macro uncertainties could likely be an overhang in the office sector. Maintain Hold.
HPH-Trust – DBSV
Update: September 2011 operating statistics
Another month of disappointing data at Yantian. Yantian Port’s throughput volume fell 4.6% y-o-y in Sep 2011 to 911,400 TEUs, the second consecutive month of negative y-o-y growth. Volume was also down 9% m-o-m, which is not unusual seasonally, but we were expecting a delayed peak season this year, which has evidently not materialised. YTD in 2011, Yantian Port’s throughput is flat y-o-y, compared to initial management guidance of 7-8% growth, and our current estimate of 2% growth. Slower exports to US and Europe, which account for close to 70% of Yantian volumes, have been the key drag.
Data from HK port caused no cheer either, as throughput growth at Kwai Tsing terminals declined by 1.7% for Sep 2011, and YTD growth now stands at 1.8%. However, we believe HPT should still be on track to achieve our volume growth assumption of 4% in FY11. Volume at JV terminal COSCO-HIT registered 4.5% throughput growth in Aug (YTD growth of 6.7%).
Discount the peak season this year. Given the data from ports and container liners so far in 3Q11, the peak season has been much worse than expected. Trade activity picked up somewhat in August but again moderated in September, as retailers remained cautious in building up inventory ahead of the holiday season, in light of the prevailing economic uncertainties. The traditional lull period in 4Q will likely be better than usual though, as retailers shift to justin-time shipments. But that again might benefit air cargo more than containers.
Maintain BUY, immaterial change in DPU estimates. Following this set of disappointing data, we would likely lower our FY11 volume growth projections at Yantian Port to 0% from 2% earlier. Lack of pricing competition and gradual shift to RMB pricing at Yantian should help support tariffs, though. Our DPU projections for FY11/12 are thus, likely to be lowered by another 2% and 1%, respectively to 5.5UScts (annualised) and 5.9UScts. This still implies a yield of 8.9-9.6% at current price, which is very attractive. We maintain our BUY call on the stock, but will finalise the numbers following the 3Q11 results and further discussions with management. Our DCF-based TP remains at US$0.95.
CMT – OCBC
3Q11 results broadly in line
3Q11 results broadly in line. CapitaMall Trust (CMT) reported 3Q11 distributable income of S$77.4m, or a DPU of 2.42 Scents, which is up 2.6% versus 3Q10; it also represents an annualized distribution yield of 5.10% based on the last traded price. 3Q revenue came in at S$159.2m, clocking an S$11.0m YoY increase mainly due to an additional S$4m from Illuma and S$7m from higher rentals. These results came in broadly in line with our expectations as YTD revenues and distributable income formed 77.1% and 72.2% of our FY11 estimates, respectively.
Operational numbers stay firm. We continue to see healthy occupancy across the portfolio at 96.0% which tracked down marginally due to enhancement works at Atrium@Orchard. Positive rental reversions across the portfolio also continued into 3Q11 as we saw 353 new leases signed YTD with 7.5% higher rentals on average. CMT’s debt maturity profile remained relatively well spread out with S$783m expected to be refinanced in FY12. The gearing ratio stayed stable at 38.4% versus 39.5% the previous quarter with the average term to maturity at 2.8 years.
Enhancement plans for Illuma announced. We expect to see asset enhancement works for Illuma take place from Nov 11 to 2Q12. Management guided that this would cost ~S$38m, and will expand the net lettable area by 4.9% to 194,306 sq ft and net property income by S$8.5m to S$19.6m annually. This would translate to a 22.4% return on investment on the AEI cost and, as a result, the yield on total cost (including AEI) for Illuma would be boosted to 5.8% from 3.8% postacquisition. We believe these targets are reasonable given CMT’s track record of mall management and its current network of retail brands familiar to local consumers.
Expect Orchard outperformance over suburban. In 3Q11, average rentals for prime Orchard Road retail space increased 5.0% QoQ while prime suburban rents were up 2.9%. We also saw the flagship store of H&M at Orchard Building start operations with a well-attended launch. Going forward into FY12, we expect current rental trends of Orchard outperformance to continue as only 16% of the estimated 657k of retail total retail supply next year would be in the Orchard area.
Maintain HOLD with unchanged S$2.06 fair value. Management continues to deliver a solid performance with Illuma enhancements to be underway. At current prices, however, many positives are likely priced in and there could be limited catalysts ahead. We also have a preference for Orchard retail exposure over suburban at this juncture. Maintain HOLD at an unchanged S$2.06 fair value estimate.