CLT – CIMB
Meeting expectations
• In line; maintain Outperform. 4Q10 results met Street and our expectations. FY10 DPU of 5.6cts (for 8.6 months of operations since listing) forms 100% of our pro-rated forecast. This translates to an annualised DPU of 7.73cts and yield of 7.8%, above the average S-Reit yield of 5.9% and average industrial REIT yield of 7.5%. We align our NPI margin assumptions with FY10 margins, and edge up our FY11-12 DPU estimates by 1.7%. We also introduce FY13 forecasts. Following our adjustments, our DDM target price climbs to S$1.32 from S$1.30 (discount rate of 8.4%). Cache trades at 1.09x P/BV, just below the 10% premium among its industrial peers but above the 6% premium for S-Reits on average. It remains our sector top pick and we expect stock catalysts from early announcements of accretive acquisitions.
• 4Q10 DPU at 1.94cts was flat qoq. Occupancy (100%) and rents were about the same as all its buildings are on master lease structures. In the quarter, some multinational corporations committed to occupying 350,000 sf (more than 15% of gross floor area) of CWT Commodity Hub for a minimum of eight years, beyond CWT's 5-year master lease. As with its earlier long-lease tenant secured last quarter, Cache has provided assurance to CWT of its right to occupy beyond the master lease (which expires in Apr 15) should the master lease not be renewed. This provides certainty of occupancy beyond the present master lease. Cache is also required to undertake some asset enhancement for its new tenants, with recovery by way of additional rents.
• Acquisition on the cards. Management continues to explore acquisition opportunities from its sponsor and third parties. Asset leverage remained low at 23%, giving Cache debt headroom of S$137m before breaching its gearing cap of 35%. We maintain our assumption of S$220m of acquisitions for this year, believing that Cache will be able to obtain a rating to gear up to 60% when it is ready to acquire beyond S$137m.
CLT – DBSV
Your money in a safe
At a Glance
• 4Q10 DPU of 1.94 Scts in line
• Modest 23% gearing with potential $135m financial headroom
• BUY, maintain TP at S$1.11 (Total Return of 20%)
Comment on Results
4Q10 DPU of 1.94 Scts was in line. Cache reported topline and net property income ("NPI") of S$14.7m and S$14.4m respectively, which was slightly ahead of IPO forecasts but met our estimates. Net interest costs was 5.8% lower compared to forecasts due to a lower all-in rate. As such, distributable income of S$12.3m exceeded forecast by 1.2%, translating to a DPU of 1.94 Scts. Superior financial metrics, modest gearing of 23.7%. Gearing remains at modest level of 23.7%, with interest cover of over 9.3x. Its loan tenure stands at 4 years, with 100% of interest costs fixed at an average all-in 4.36%.
Recommendation
Cache is positioned for further growth. Cache's current gearing empowers the trust with a debt-funded war chest of cS$135m at a gearing limit of 35%, given its non-credit rating status. Going ahead, acquisitions will drive growth. Besides the visible pipeline from sponsor CWT and C&P, the manager is also evaluating 3rd party opportunities in Singapore and the region to grow its portfolio. We have assumed S$100m acquisitions in our numbers. BUY Call, TP maintained at S$1.11. We continue to like Cache for its transparent and sustainable earnings model, with annual step-up provisions ensuring steady growth Attractive FY11-12F yields of 8.4*-8.6%, some 240-260 bps above the Sreit sector average of 6.0%. Further upside will stem from Cache acquiring assets at larger quantum or higher yields than assumed.
FCOT – OCBC
Heading the right direction with divestment of Cosmo Plaza
1Q11 DPU of 0.25 S-cents. Frasers Commercial Trust (FCOT) announced 1Q11 gross revenue of S$29m, which declined 2.3% YoY and 1.1% QoQ. This was mainly attributed to the lower contribution from Cosmo Plaza as a result of the expiry of a significant tenancy in Aug 2010. Subsequently, FCOT successfully completed the divestment of Cosmo Plaza on 18 Jan 2011, Amount available for distribution to unitholders is S$7.9m, an increase of 6.7% from a year earlier, amounting to a 1Q11 DPU of 0.25 S-cents.
Successful Divestment of Cosmo Plaza. As part of capital recycling, FCOT has been trying to divest Cosmo Plaza since 3Q09, but found no suitable buyer. Cosmo Plaza has been affected by the economic slowdown in Japan, which saw its occupancy rate dipped from a peak of 100% in 2008 to a trough of 26% in 2010. FCOT made a gain on disposal of approximately S$7.28m from the transaction. We have assumed the sale proceeds will be used to pare down FCOT's debt, which matured mostly in 2012. We view this divestment favorably, as it will improve the overall quality of the portfolio and lower FCOT's gearing from 39.8% to slightly below 38%. Overall portfolio occupancy will also improve from 91.8% to above 96%.
Portfolio Performance. Both 55 Market Street (55MS) and KeyPoint saw a rise in occupancy rate in 1Q11, but gross revenue fell 13% QoQ for 55MS. We think that 55MS is possibly still experiencing negative rental reversions. According to our estimates, 55MS is likely to bottom-out of negative territory only in 2012-2013 (factoring in its lease expiry profile), while China Square Central (CSC) and Keypoint should turn positive much earlier. For the Australian properties, average occupancy rate remains healthy at 95.3%. Excluding Cosmo Plaza, the average occupancy rate for the Japan properties is 93.0%.
Maintain BUY. FCOT is currently trading at a PBR of 0.44x, which is lower than its historical PBR of 0.54x since listing. We believe that one reason could be a legacy issue; this being FCOT was formerly known as Allco Commercial REIT before it was bought over by FCL in 2008. Given the strong sponsor, capable manager and stable income, we feel that the high discount is unwarranted. As a first step, the manager is heading the right direction by divesting low income-producing assets. We anticipate further scope for the manager to grow income through asset enhancement initiatives and acquisitions. Maintain BUY with an unchanged fair value of S$0.18.
CDL H-Trust – Phillip
FY10 Results
•4Q10 revenue $33.3m, NPI $31.5m, distributable income $26.6m
•FY10 full year revenue $122.3m, NPI $115.1m, distributable income $92.0m
•4Q10 DPU of 2.78 cents, bringing full year DPU to 10.21 cents.
•Best year since listing, beneficiary of economic recovery
•Maintain Buy recommendation, target price $2.38
2010 was a good year for CDL HT. Full year numbers were very much in-line with our estimates. Revenue came in spot on with our forecast but DPU was 4% higher than our figure. 4Q10 revenue was $33.3 million (+5.4% q-q, +27.5% y-y), net property income was $31.5 million (+4.4% q-q, +27.3% y-y) and distributable income after deducting retained income was $26.6 million (+9.8% q-q, +18.5% y-y). For the full year, revenue came in at $122.3 million (+33.3% y-y), net property income was $115.1 million (+33.2% y-y) and distributable income after deducting retained income was $92.0 million (+28.2% y-y). 4Q10 DPU was 2.78 cents bringing full year DPU to 10.21 cents. The improved y-y performance was on the back of a strong economic recovery that boosted the tourism revenue. This translated into direct benefits for CDL HT. Average occupancy rate for the Singapore hotels was 88.6% (2009: 81.4%), RevPar was $191 (2009: $149). In addition to the strong domestic statistics, the Australia hotels portfolio which CDL HT purchased in 1Q10 also contributed to top- and bottom- line growth. Revenue contribution from Singapore, New Zealand and Australia was 81%, 7% and 12% respectively.
Property portfolio consists of 6 properties in Singapore, 1 in New Zealand and 5 in Australia. For the year, the portfolio recorded $51.4 million in revaluation surplus, a reflection of the strong underlying income. Total asset value is $1,787.1 million. CDL HT has total debt of $382.7 million with a gearing of 20.4%. The debt will be due in 2013.
Management gave an update on its Australia hotels with regard to the recent flooding. Similar to our note sent out on 5 January, the hotels are not physically affected and are still operational. To reiterate, the revenue stream from Australia is backed by a base and variable component whereby we estimate the variable component contributes approximately 1% to total portfolio revenue in FY2011E. CDL HT has performed strongly in FY10. We are still positive on the tourism sector for this year. We are forecasting FY11E DPU of 10.28 cents, translating to a dividend yield of 4.9%. We are maintaining our buy recommendation and target price of $2.38.
StarHill Global – OCBC
4QDPU Highest since IPO; More Rental Upside ahead
4QDPU of 1.04 S-cents. Starhill Global REIT reported 4Q10 gross revenue of S$45.6m, up 33% YoY and 0.9% QoQ. Distributed income rose 7.6% YoY and 4% QoQ to S$20.2m. For FY10, gross revenue jumped 23.1% to S$165.7m, which was in line with our expectations. The revenue increase was attributed to the contribution from Starhill Gallery and Lot 10 in Malaysia, and David Jones Building in Australia, which were acquired in 2010. Distributed income was also 3% higher at S$75.7m. 4Q10 DPU is 1.04 S-cents – the highest ever achieved in a quarter since Starhill’s IPO in Sep 2005. This was 7.2% higher than the 0.97 S-cents paid out in 4Q09. On an annualized basis, the latest distribution represents a yield of 6.42%1 .
Rentals act in its favor. As at 31 Dec 2010, Starhill’s Singapore retail and office occupancy was 99.1% and 92.5% respectively. We are also witnessing decelerating declines in its office rental income, signaling that negative rental reversion for Starhill’s office portfolio is likely to bottom out in 2011. In addition, about 87% of its gross office rents will expire by 2013. We believe that Starhill stands to gain from the prime office rental recovery, which just begun experiencing doubledigits growth rates (12.2%) on a quarterly basis in 4Q10 (according to CBRE). On the retail side, we think that Prime Orchard rents are also likely to pick up pace soon, due to the following reasons: (1) Prime Orchard rents have declined and narrowed significantly from suburban rents over the past year. It is only logical to go upwards, since suburban rents sets the floor to prime Orchard rental rates. (2) Orchard retail supply has stabilized; we do not expect mega, large-scale malls coming up like what we have seen in 2009-2010. (3) Shopper traffic along Orchard road have burgeoned much, correlating to the increase in tourist arrivals to Singapore. This is likely to exert upward pressure on rental rates. In our opinion, Starhill is poised to capitalize on the rental upside ahead, especially given that one of its major tenants at Ngee Ann City, Toshin Development (constitutes 20% of Starhill’s gross rental income) is up for rental review (with upwards only provision) in Jun 2011.
Valuation still Compelling. Starhill is currently trading at a PBR of 0.71x, which is lower than its historical PBR of 0.73x since listing. We still think that this discount is unwarranted, given its prime assets positioning, strong sponsor and sound financials. Rental escalation ahead serves as strong catalyst. Maintain BUY with an increased fair value estimate of S$0.74.