a-iTrust – DBSV
Portfolio expansion in progress
• 4Q11 DPU of 1.5 Scts in line
• Visible development pipeline, growth likely to be backend loaded from 2H12
• Maintain BUY with TP revised to S$1.05
4Q11 DPU of 1.5 Scts in line. A strong S$ continues to “distort” actual performance of a-itrust 4Q11 again. Revenues in S$ terms grew 1% y-o-y S$31.1m (+10% in INR) while net property income fell by 3% to S$16.4m (+6% in INR). Operating expenses were higher due to an increase in portfolio size coupled with higher utilities expenses and cost of fuel. Distributable income of S$11.5m (DPU of 1.5Scts) was 16% lower y-o-y due to higher interests costs due to loans (previously capitalized) taken out to fund the construction of Zenith and Park Square. In 4Q11, a-itrust recorded a revaluation of S$1.2m, translating to an NAV of S$0.80.
Visible development pipeline, but earnings growth likely to be back-end loaded from 2H12 onwards. Portfolio occupancy levels remain stable at 97%, and portfolio rentals remain flattish with incremental earnings growth primarily driven by its development project completions and its recent acquisitions, which are expected to complete soon. Zenith and Park Square Mall added 1.2m sqft of NLA to the portfolio but have not contributed significantly to earnings in 4Q11 as it is still 42% and 61% precommitted but expected to inch up slowly in coming quarters. Moreover, tenants are currently in their rent-free periods as they are undergoing fit-outs. Commitment levels at another completing development project, Voyager (ITPB), is progressing well at 68% YTD and is expected to head towards 80% soon. This strong demand for space prompted a-itrust to begin the planning and designing of another development project within the SEZ zone in ITPB – a 540,000 sqft multi-tenanted building which is expected to complete in 2013.
BUY, TP revised to S$1.05. We adjust our DPU estimates slightly to account for delayed earnings contribution from development projects and a stronger S$-INR exchange. We believe earnings have hit a trough in 4Q11 and should see sequential growth with the completion of new buildings at Hitec City coupled with the continuous ramp up in operations at its 3 recently completed development projects
Starhill Global – DBSV
Boost from acquisitions
At a Glance
• DPU of 1.07cts in line with expectations.
• Positive master lease rental reversion and asset enhancement works to underpin growth
• Maintain Buy with S$0.73 TP
Comment on Results
No surprises, although DPU highest since listing. Starhill Global REIT (SGREIT) reported a strong 21.9% y-o-y growth in topline to S$45.8m and 27.2% y-o-y growth in NPI to S$37.1m boosted by the higher revenue from Chengdu property and expansion of its portfolio – full quarter contributions from David Jones Building and Malaysia properties acquired last year. However, gross revenue and NPI improved by a marginal 0.5% and 0.9% respectively on sequential basis, as the SG office portfolio continued to experience negative rental reversion coupled with poorer performance from its Japanese portfolio (-13.0% qoq). After retaining S$0.8m, distributable income of S$20.8m (net of S$2.4m to CPU holders) translates to a DPU of 1.07 Scts.
Moving occupancy up. Chengdu property and David Jones Building are fully occupied. Take-up at Wisma Atria rose 1.7 ppt qoq to 94.5%, while Ngee Ann stabilised at 98.4% (-0.3 ppt qoq). Meanwhile, retail sales at Wisma Atria increased by 0.4% YTD backed by 6% higher footfalls to 6.8m. Going forward, we expect stronger performance in 2H11 from the completion of asset enhancements at Starhill Gallery in 2Q and the positive rental renewals from Toshin and David Jones master leases that are up for renewal in June and Aug 2011.
Healthy financials. Gearing remains healthy at 30.2%, well below the optimum level of 45%. With no major refinancing needs till 2013, the group is in good financial position to make further acquisitions.
Recommendation
We maintain our BUY call, TP of $0.73. The improving office outlook and stabilised retail market should lead to further improvement in its SG portfolio that represents 60% of its total revenue. We see relative value in SGREIT with the stock trading at 0.7x P/BV and offering forward FY11-12 yields of c6.9-7.3%.
CLT – CIMB
Backend-loaded contributions expected
• In line; maintain Outperform. 1Q11 DPU of 1.95 Scts met expectations, forming 21% of our FY11 estimate and 24% of the Street’s. This translates to an annualized DPU of 7.92 Scts for an 8.4% yield. We expect backend-loaded contributions with S$220m of debt-funded acquisitions assumed for FY11. No change to our DPU estimates or DDM-based target price of S$1.32 (discount rate 8.4%). We continue to like Cache for its quality portfolio and scalability. Balance sheet is one of the strongest among S-REITs, leaving it with debt headroom for accretive debt-funded acquisitions from sponsor CWT and third parties. Cache trades at 1.05x P/BV and offers a prospective FY11 DPU yield of 10%. We see catalysts from accretive acquisitions.
• 1Q11 DPU up 0.7% qoq. Cache’s portfolio remains fully leased, with a long WALE of 5.5 years. NPI was up 0.5% qoq in 1Q11 from rental step-ups though it missed management’s forecast by 1% due to timing differences for rental step-ups. Distributable income (+0.8% qoq) and DPU (+0.7% qoq), however, met management’s forecasts on lower financing costs.
• Maiden third-party acquisitions in 1Q11. Cache completed the acquisition of 6 Changi North Way on 31 Mar and is in the process of completing the acquisition of 4 Penjuru Lane. The latter comes with development potential with an un-maximised plot ratio of 0.63 (vs. maximum plot ratio of 2.5). We expect backend-loaded contributions from these two and look forward to more third-party acquisitions to expand its portfolio and dilute tenant concentration risks for sponsor, CWT.
• Acquisition catalysts. Asset leverage is expected to climb to 27.6% after the completion of the above two acquisitions, leaving Cache with debt headroom for S$84m before breaching its gearing cap of 35%. We continue to assume S$220m of acquisitions (inclusive of S$40m of acquisitions announced recently) for FY11, believing Cache will be able to obtain a rating to gear up to 60% on a full ramp-up of its acquisitions.
CDL H-Trust – DMG
Tourist arrival booster continues
1Q11 DP U rose 2.6% YoY. CDL Hospitality Trusts (CDLHT) reported DPU of 2.38S¢ (+2.6% YoY; -14.4% QoQ), representing 20% of our FY11 DPU estimate. Stripping out the one-off exchange gain in 1Q10, DPU for 1Q11 grew 23.5% YoY. Gross revenue grew 21.4% YoY in 1Q11 (-3.1% QoQ) mainly due to 1) full three-month contributions from the Australia Hotels acquired in Feb 2010 (vs 41 days of contributions in 1Q10), and higher RevPAR for Singapore Hotels at S$195 (+12.1% YoY; +0.8% QoQ). We expect the acquisition of Studio M Hotel to be completed in May 2011 and this will boost CDLHT’s DPU in subsequent quarters. Maintain BUY and unchanged TP of S$2.46, based on DDM (COE: 8.4%; TGR: 3.0%).
Tourist arrival growth expected to remain strong. The Singapore Tourism Board projects tourist arrival numbers to grow 7.9%/year to 17.0m in 2015. In addition, the recent nuclear crisis in Japan could potentially boost Singapore’s tourist arrival further in FY11. Given the positive outlook, we believe CDLHT will continue to benefit from high occupancy rate as well as rising ARR. AOR and ARR for CDLHT’s Singapore hotels in 1Q11 are 85.7% (+1.7ppt YoY; -4.3ppt QoQ) and S$228 (+10.1% YoY; +6.0% QoQ) respectively.
Studio M hotel acquisition to boost DPU in subsequent quarters. The EGM for the acquisition of Studio M will be held on 29 Apr 2011. Based on assumed debt cost of 3.5% and net property income yield of 6.1%, we estimate the new addition will contribute 0.3-0.4S¢ to FY11-12 DPU respectively.
Post acquisition gearing of 26.9% implies debt headroom of ~S$240m. Based on 1Q11 total asset of S$1.8b and target gearing of 40%, we estimate CDLHT is able to take on another S$240m worth of debt to bolster its cash pile for further acquisitions or AEI following the acquisition of Studio M Hotel which will be fully funded by debt.
CLT – DBSV
Awaiting the acquisition kicker
At a Glance
• 4Q10 DPU of 1.95 Scts accounted for 23% of FY estimates
• Completion of recent acquisitions to drive earnings growth in coming quarters
• BUY, TP maintained at S$1.11
Comment on Results
1Q11 results in line. DPU of 1.95 Scts formed 23% of our full year forecast. Cache Logistics Trust (“Cache”) reported topline and net property income (“NPI”) of S$14.8m and S$14.4m respectively, which were slightly below IPO forecasts due to timing differences in revenue recognition for the purchase of its initial properties and pro-rated monthly income. Distributable income of S$12.4m exceeded forecast by 0.2%, largely due to loans obtained at cheaper rates, translating to a DPU of 1.95 Scts (+0.6%).
Proactive asset management. New acquisitions yet to kick in. Management remains proactive in managing its properties – securing additional commitment from an existing tenant at Commodity Hub while embarking on AEI opportunities to boost rental income, albeit marginal increase in income. Recent acquisitions of 6 Changi North Way APC Districentre and 4 Penjuru Lane will underpin earnings growth in the coming quarters.
Lowly leveraged balance sheet; Cache has the firepower to execute on further acquisitions. At a modest 26.4%, Cache remains one of the lowest geared S-REITs. We continue to see acquisitions as potential catalysts given visible pipeline of properties from sponsors CWT and C&P on top of 3rd party opportunities regionally. We have moderated our estimates slightly as we adjusted contributions from new acquisitions to start only from end-2011.
Recommendation
BUY call, TP maintained at S$1.11. Cache remains attractive for its FY11-12F yield of 8.5-9.0%, which is 230-270 bps above peers’ average of 6.0% – 6.3%.