ART – DBSV
Stellar Singapore!
• 3Q10 DPU of 1.85 Scts in line
• Stellar Singapore operations drove portfolio growth
• Expanded portfolio provides stable and visible income source ahead
• Maintain BUY for exposure to booming travel industry in Asia. TP S$1.38 (20% total return)
3Q10 DPU of 1.85 Scts in line. Ascott REIT (“ART”) topline and gross profit of S$43.5m (+5% yoy, +5% qoq) and S$21.1m (-6% yoy, +2% qoq) respectively were in line with expectations. Led by strong performances in its Singapore and Philippines operations, ART achieved a portfolio RevPAU of S$130/night in 3Q10 (+7% yoy, +4% qoq) on the back of slight uptick in occupancies to 83%. Distributable income remained stable at S$11.9m, translating to a DPU of 1.85 Scts (excluding distribution to placement units, DPU will have been 1.94 Scts).
Performance pulled ahead by Singapore, With inventory in Singapore fully operational, it delivered a stunning 31% growth in topline, which was in line with expectations, driven by higher RevPAU (S$243/night, +37% yoy). This is followed closely by its operations in Australia (RevPAU: S$153, +15%yoy) and Philippines (S$137, +4% yoy), due to improved demand for rooms amid rebounding travel activities. Operations in the other remaining countries were relatively mixed.
Asia to drive 53% of topline growth going forward. With the recent portfolio injections from the sponsor completed, ART will derive 53% of its income from Asia and the remaining 47% from Europe. This will form a stable and visible income source for ART from 4Q10 onwards. We moderate our FY10-11 DPU forecast slightly to account for a stronger S$.
BUY call maintained, TP S$1.38. With FY11-12 prospective yield of c6.6-6.7%, ART offers investors an attractive exposure to the recovery in global travel & business activities. Current price offers total return of 20%.
CMT – DBSV
Taking a prudent step
• 3Q10 distribution income up a marginal 4.0% qoq, within expectations
• Proactive actions taken to manage FY11 refinancing exposure
• Maintain Buy and TP $2.09
In line with expectations. 3Q10 revenue of $148m was 4.0% higher qoq, while NPI improved by 2.5% to $101m. Performance was boosted by the additional income from Clarke Quay, acquired in early July 2010 and a more robust leasing environment. Renewals and new leases totaling to 247,891 sf, contributed an incremental $1.5m to topline on positive rental reversion of 2.1% yoy while portfolio occupancy was up 0.1ppt qoq to 99.6%. Footfalls at CMT’s malls increased by 3.2% yoy on the back of improving consumer sentiment and tourist arrivals. Gross turnover psf grew 5.6% YTD. Distributable income improved 2.8% to $75.2m (DPU: 2.36cts) based on c95% payout ratio as the group retained $10.1m of tax-exempt income from CRCT to be paid out in FY11.
Mitigating refinancing risk in 2011. In FY11, the group will face 2 major refinancing exercises comprising $346.4m share of Raffles City CMBS and the $550m CBs with a put option in July 2011. To manage potential DPU dilution from the premium payable on the CBs if/when it gets put, the group had deferred payment of tax-exempt income from CRCT into next year and is currently reviewing its refinancing options. While we expect interest expense to rise post loan roll-over, this is likely to be partially mitigated by cheaper funding sources for its CMBS. Operation-wise, 4Q earnings are likely to be lifted upon the completion of its AEI works at Raffles Place from Oct and positive rent renewals from the remaining 6.9% of NLA this year.
Maintain Buy. We are adjusting our FY10 and FY11 DPU to reflect the push back of CRCT’s dividend income. We believe CMT will continue to be one of the main beneficiaries of rising retail sales given its major estimated 25% share of retail space in Singapore. Our DCF-backed TP of $2.09 translates to an FY11 yield of 5%. We maintain our Buy call on CMT with a total return of 8.5%.
Cambridge – DBSV
Attractive 9% yield
• S$50.4m cash call to fund property purchases
• Improved financial metrics, slight accretion to DPU
• 300 bps spread above Sreit sector average yield of 6.0% is attractive, Upgrade to BUY, TP revised to S$0.58
S$50.4m cash call to fund growth opportunities. Cambridge REIT (“CIT”) announced an equity fund raising (“EFR”) of S$50.4m via (i) private placement of 56.5m units (fully subscribed) and a preferential offering of up to 38.5m units, at S$0.531 per unit (fixed at 4.9% VWAP to price on 19 Oct).
Target yields of properties to be >8.0%. Proceeds will be used to fund the purchase of 4 properties of which 1 is a development project – CIT’s first undertaking. Post EFR, CIT will have stronger financial metrics (gearing of 36.4% after scheduled loan repayment in Nov’10), and reduced concentration of lease expiry in FY13-14 to 56.9%.
Enhancement plans unveiled, to boost DPU. CIT also unveiled AEI plans for 2 of its properties at a cost of S$13.1m, where incremental NPI yield is expected to be in excess of 15%. With the share placement and AEI works, we raised our forward FY11 DPU estimates to 2%.
3Q10 DPU of 1.18 Scts in line. Lower 3Q10 revenue and net property income (“NPI”) of S$18.2m (-2.6% yoy) and S$15.9m (-2.6% yoy) respectively were due to ongoing divestment program. Performance in 4Q10 should be lifted by contribution from its new acquisitions completed in recent weeks.
TP revised to S$0.58, Upgrade to BUY. We see relative value in Cambridge REIT given its high FY11-12 yield of 8.9-9.2%, which is a 300 bps above the average Sreit peers. Income visibility and stability is strong, given that most of its properties are sale-and-leaseback properties. Upgrade to BUY and raised TP to S$0.58.
FCOT – DBSV
Waiting for the right time
• DPU of 0.31Sct (+55%yoy,+24%qoq) in line
• Singapore operations stable; Japan remains a drag
• Maintain HOLD with revised TP of $0.19
4Q10 results in line. Gross revenue and net property income was 14% and 16% higher yoy at $29.3m and $23.2m respectively due a full quarter’s contribution from Alexandra Technopark and improved performance at Keypoint with higher occupancy of c81%. On a sequential basis, 4Q10 topline was flattish, dragged down by its Japan property – Cosmo Plaza – which posted a 22% qoq decline in rental income, although NPI rose a marginal 2.3% qoq, helped by lower property expenses. Distributable income net of CPPU dividend amounted to $9.5m (DPU: 0.31Scts), up 24% qoq, thanks to the stronger AUD. The group revalued its properties up by $36.3m or 1.9% at latest cap rates of 4-5% for its properties in Singapore and lowered gearing to 39.6%.
Operations a mixed bag. Occupancy of Cosmo Plaza Osaka dropped to 25.6% with the expiry of lease of a major tenant in Aug 2010. This will continue to be a drag on earnings. Management attributed the non-traditional business location a hurdle to attract tenants. Successful divestment of this asset would improve FCOT’s book NAV and gearing. Meanwhile, Central Park and Caroline Chisholm Centre in Australia should enjoy some reversion upside from rent reviews with step-up clauses in 2011. In Spore, boost in rental income will come from higher occupancy at Keypoint.
Financing could provide earnings uplift in the medium term. Management is also looking at refinancing its debt due in 2012 (100%), given the current attractive interest rate environment, and smoothening out the lumpy loan maturity profile. We believe the group could likely achieve lower than current interest cost of 4.1% upon refinancing and boost bottomline in the medium term. This had not been factored into our existing forecast.
Maintain Hold. While yields of c6.7 – 7.1% is attractive relative to other office peers, re-rating catalyst from further clarity of management portfolio restructuring plans, appears lacking. We are revising our DCF-backed TP to $0.19 as we roll our numbers forward into FY11. Retain Hold call.
ART – BT
Ascott Reit’s Q3 DPU down 4%
ASCOTT Residence Trust (Ascott Reit) has announced a distribution per unit of 1.85 cents for 3Q10, down 4 per cent from 1.92 cents in 3Q09. Excluding the private placement tranche of 419.66 million new units which were issued to partly fund the acquisition of 28 properties in Singapore, Vietnam and Europe, the DPU for 3Q10 would be 1.93 cents. Revenue rose 5 per cent year-on-year to $46.48 million while unitholders’ distribution rose one per cent to $11.95 million. Gross profit fell 4 per cent to $21.12 million, compared to 3Q09.