ART – CIMB
Asian growth less than ideal
• Below expectations; downgrade to Underperform from Outperform. 3Q10 results were below Street and our expectations with DPU of 1.93cts (excluding new placement units) forming 23% of our FY10 forecast (we had expected 26%) due to lower-than-expected growth in REVPAU. YTD DPU forms only 65% of our estimate. We factor in equity fund-raising, contributions from its European portfolio and moderated REVPAU assumptions for the Philippines and Vietnam. As a result, we cut our DPU estimates by 7-10% for FY10-12. We also roll over our target price to end-CY11. Our DDM target price (discount rate 8.3%) falls to S$1.24 from S$1.35. Although ART does not appear too expensive at about book value (proforma NAV S$1.28) and dividend yields are in line with the SREIT average, we downgrade it to Underperform, recommending a switch to SREITs with more Singapore-centric assets as: 1) Asian growth (other than Singapore) has not been as strong as anticipated; 2) the addition of its European portfolio will dilute the growth impact from Asia; 3) forex risks and tax leakages have increased; and 4) limited price upside. These are expected to provide de-rating catalysts.
• YTD distribution falls short with fewer non-tax deductible items. 3Q10 DPU of 1.93cts (excluding new units) was not strong enough to pull up YTD DPU as we had expected a strong quarter to make up for 1H10. 9M10 DPU of 5.46cts (excluding new placement units) forms only 65% of our FY10 forecast which had not accounted for its European portfolio. Fewer-than-anticipated non-tax deductible items and higher-than-expected taxes were the main reasons. Actual DPU to be paid taking into account new units issued would be 5.38cts for 9M10.
• Expect higher taxes from Europe. Compared to our forecast of 8.35cts in our last report dated 23 Aug following its European acquisition, our DPU forecasts have been cut by 5% on higher assumptions of corporate taxes for its European portfolio (estimated at 28%).
FCOT – Phillip
•4Q10 revenue of $29.3 million, net property income of $23.2 million, distributable income of $9.5 million
•4Q10 DPU of 0.31 cents
•Full year revenue up 21%, DPU up 29%
•Maintain Hold, target price $0.18
Spot-on DPU forecast
FCOT recorded 4Q10 revenue of $29.3 million (+14.1% y-y, +0.2% q-q), net property income of $23.2 million (+16.4% y-y, +2.3% q-q) and distributable income available to unitholders of $9.5 million (+54.6% y-y, +23.0% q-q). 4Q10 DPU was 0.31 cents (+55.0% y-y, +24.0% q-q). Full year results for the period 1 Oct 2009 to 30 Sep 2010 also improved correspondingly. Full year revenue was $117.9 million (+21.0% y-y) and DPU for the full year was 1.12 cents (+29.0% y-y) which was spot-on with our own forecast.
Favourable AUD, stabilization effect of Alexandra Technopark
The improved y-y performance is mainly attributed to the contribution from Alexandra Technopark, which was acquired in Aug 2009, as well as favorable exchange rate of the AUD. Revenue breakdown by country is Singapore: 51.7%, Australia: 35.2%, Japan: 13.1%.
All round improvement; Japan still the drag
Generally occupancy improved for the Singapore and Australia portfolio except for the Japan portfolio. Portfolio occupancy for 4Q10 was 90.8%. Occupancy by country is Singapore: 96.1%, Australia: 98.8%, Japan: 55.5%. Cosmo Plaza continues to be the drag on overall occupancy. Excluding Cosmo Plaza, Japan portfolio occupancy would be 93.5%.
CMT – Kim Eng
Consistency is key
Event
• CapitaMall Trust (CMT) reported a 7.1% yoy increase in its net property income to $101.2m for 3Q10, due in part to its acquisition of Clarke Quay. The result is in line with our expectations. A DPU of 2.36 cents a share was also announced, taking year‐to‐date DPU to 6.88 cents a share. The consistent performance looks set to last as more organic growth is expected in 2012 and 2013. Maintain BUY.
Our View
• CMT continues to enjoy positive rental reversions with an average growth of 2.1% in rents from renewals or new leases signed so far this year. Its portfolio occupancy rate remains a robust 99.6%, dragged down only slightly by the newly acquired Clarke Quay.
• In addition to active lease management, asset enhancement initiatives at JCube and The Atrium@Orchard will propel organic growth in 2012 and 2013, respectively. We believe this should more than offset the marginal increase in financing costs, assuming that the convertible bonds are put back by holders in 2011.
• The retail industry in Singapore should continue to post stable performance as consumer confidence strengthens. The Retail Sales Index showed that retail sales, excluding motor vehicles, grew by 6.2% in August, marking the tenth consecutive month of yoy growth. As long as this continues, it should augur well for CMT’s tenants.
Action & Recommendation
While we continue to expect CMT to deliver similarly steady performance in the future, further positive catalysts may come from its possible participation in greenfield development projects, in partnership with its sponsor CapitaMalls Asia. Maintain BUY with a DDM‐derived target price of $2.27.
a-iTrust – DBSV
Hit by stronger S$ exchange
• Stable 2H10 outlook
• Development projects on track; pre-leasing activities slightly behind schedule in our view
• Downgrade to HOLD given limited upside to S$1.08 TP
2Q11 DPU of 1.70 Scts in line. Topline and net property income (“NPI”) were in line with expectations at S$29.6m (-3% yoy, -4% qoq) and S$18.2m (-5%yoy,-4% qoq) respectively; the declines due to a stronger S$:Rp exchange rate. As such, distributable income came in 8% lower at S$13.2m, translating to a DPU of 1.70Scts.
2H10 outlook is stable. Earnings in Rp remained stable with rental revenues inching upwards but offset by lower maintenance and operations income. A further 19% of its space is to be renewed in 2HFY11. While its operations in Bangalore and Hyderabad are expected to continue to see positive reversions, they are expecting to see moderate pressure in Chennai (ITPC) given the large competing supply situation there. As such, we moderate our rental growth assumptions from +2% to flat in 2H10, resulting in a slight reduction in our forward estimates.
1.7m sqft of development projects on track, pre-leasing activities slight behind schedule, in our view. 2 out of 3 buildings (Zenith in ITPC & Park Square Retail Mall in ITPB, +1.19m sq ft) will be completing soon. Pre-commitments are at 20% and 47% respectively, slightly slow for Zenith in our view. Negotiations are on-going and we remain confident that a-itrust will be able to fill the remaining space in the coming quarters. However, the slower than expected take-up will mean that earnings growth from these completions will likely be felt only from 2H FY12.
Downgrade to HOLD, TP S$1.08. While we like a-itrust as a premier space provider in India, we see limited upside to our price objective from current levels. As such, we downgrade to HOLD. Aitrust offers FY11-12F yields of c 6.7-7.7%.
Upside surprise. Upside surprise will hinge on acquisitions that the trust could undertake given its low gearing of 22%, which is not factored in our estimates.
ART – OCBC
3Q10 results mostly in line; maintain BUY rating
3QDPU of 1.85 S-cents. Ascott Residence Trust (ART)’s 3Q10 gross revenue of S$46.5m edged up 4.8% YoY and 4.6% QoQ. However, gross profit dropped 4% YoY but rose 1.8% QoQ to S$21.2m. The manager attributed the YoY decline in gross profit to a one-time charge of prior years’ property tax of S$0.3m for an Indonesian property previously not assessed by the tax authority. Excluding further one-off adjustments in both 3Q10 and 3Q09, gross profit would have been S$21.4m and S$20.4m respectively, representing an increase of 5% YoY. The trust also declared 3Q DPU of 1.85 S cents, translating to a drop of 3.7% YoY and 1.1% QoQ. This was largely due to 419.66m new private placement units issued on 22 Sep to fund the acquisition of 28 new properties which was completed on 1 Oct. Recall that ART has previously acquired these service residence properties from its sponsor, comprising 26 in Europe and one each in Singapore and Vietnam for a sale consideration of S$969.6m. If we exclude the new private placement units, 3Q DPU would be 1.93 S cents, representing an increase of 0.5% YoY or 3.2% QoQ.
Advanced Distribution. As a result of the equity fund raising, ART will declare, in lieu of the scheduled distribution, an advanced DPU of 1.74 S cents for the period from 1 Jul to 21 Sep (day immediately prior to the date of private placement). The advanced distribution will be paid out on 19 Nov. As the trust distributes semi-annually, the remaining 3Q10 DPU of 0.11 S cents will be credited into the distributable income from 22 Sep to 31 Dec.
Portfolio Performance. ART’s RevPAU increased 7% YoY in 3Q10, mainly led by RevPAU growth of 37% in Singapore. The better performance in Singapore is mainly due to the successful launch of the refurbished apartment units of Somerset Grand Cairnhill and Somerset Liang Court. RevPAU for Australia, China, Indonesia and The Philippines also increased in 3Q10. We are also seeing better performance in Shanghai arising from World Expo. However, Tianjin’s performance declined due to increased competition and reduction in corporate accommodation budget. Japan is also facing weak market demand and lower profits due to higher repair, maintenance and advertising expenses.
Maintain BUY. Our investment thesis on ART is intact and we look forward to the performance results and revenue contribution of the 28 newly acquired properties in 4Q10. Management has also stated its confidence in delivering the forecasted 4Q DPU of 1.84 S cents as disclosed in the Offer-Information-Statement (13-Sep). Maintain BUY with an unchanged fair-value of S$1.38.