MLT – CIMB
Competition heating up
• Beat expectations; but maintain Underperform. FY09 results exceeded consensus and our expectations (107% of our estimate). We change our assumptions to reflect acquisitions requiring debt and equity funding, and lower our cost-of-debt assumptions. Our FY10-11 DPU estimates fall by 3-4%. We also introduce FY12 estimates. Following our adjustments, our DDM-target price falls to S$0.74 from S$0.79 (discount rate 8.6%). Maintain Underperform as we expect competition in the industrial space to intensify in 2010. Possible re-rating catalysts may come from the acquisition of significantly accretive assets.
• Full-year distributable income of S$117.9m and DPU of 6.02cts exceeded Street and our expectations, though EBITDA was below our expectations (93% of FY09 forecast). This was attributed to the inclusion of an exceptional S$2.5m consideration from Prima Limited for an extension of its lease along Keppel Road in distributable income. Full-year net property income of S$180.8m was up 12% yoy, mainly on contributions from 11 acquisitions completed in 2008. Only one property (7 Penjuru Close) was acquired in 2009. Portfolio occupancy improved to 98.1% from 97.1% in the last quarter.
• Asset revaluation. MLT’s 82 properties were valued at S$2.9bn as at Dec 09. This was down a marginal S$16.5m, or 0.6% of its asset size. Its book value dipped to S$0.85/unit from S$0.89/unit in Dec 09.
• Expect acquisitions and intensifying competition in 2010. Management is ready to acquire this year after a hiatus in 2008. Last November, we estimated S$200m worth of acquisitions for 2009-10. Only S$43m was used to acquire 7 Penjuru Close. We bring forward the remainder S$157m to FY10, and now assume a 60:40 debt to equity ratio. We also lower our cost-of-debt assumption to 3% (from 3.5%) given improved credit conditions and MLT’s unencumbered balance sheet. Our DPU estimates fall by 3-4% for FY10-11. Both the business and credit environment has improved for the logistics and warehousing sector, auguring well for MLT’s properties. However, the same should also attract more competition from listed and unlisted property funds and trusts. We believe acquiring overseas assets could be more accretive than acquiring in Singapore.
ART – OCBC
4Q09 in line; revising our FY10F estimates upwards
4Q09 in line with our estimates. Ascott Residence Trust (ART) posted S$46.1m in 4Q revenue, down 2.4% YoY but up 3.8% QoQ. ART will distribute S$11.5m, up 11.8% YoY but down 2.5% QoQ. This is equivalent to 1.87 S cents DPU, just 1.5% shy of our estimate of 1.90 S cents. ART booked an
S$11.7m gain in property values versus June 2009. Overall RevPAU was S$124 compared to S$133 in 4Q08 (-6.8% YoY) and S$124 in 3Q09 (flat).
Tone of guidance positive. The manager said that it expects “improvement in hospitality demand in 2010 in line with the more positive economic sentiments, though the extent of the economic recovery is uncertain.” Occupancy levels have stabilized and in some markets, approaching levels where there is scope for rate increases. The manager did say that visibility was still limited, and 1Q10 results would bring more clarity. ART will “seek accretive acquisition opportunities to expand [ART’s] portfolio”. It sees opportunities in China, Vietnam, India (a new market for ART) and potentially Singapore.
Full speed ahead on asset enhancement plans. ART reiterated it is taking advantage of the occupancy lull to press ahead on asset works. The manager guided that it is targeting refurbishments of five properties each in 2010 and 2011. This includes Somerset Liang Court and Somerset Grand Cairnhill in Singapore and Somerset Grand Hanoi in Vietnam. These properties were last refurbished 10-12 years ago. The planned works will be funded using a combination of debt and operating cash flows.
“Comfortable” with current leverage quantum. The manager said that bank commitments & existing facilities are sufficient to re-finance debt maturing in 2010 (15% of total outstanding). It has already initiated talks with lenders on refinancing the much larger proportion of debt due in 2011 (59% of total). ART also said it was satisfied with current leverage of 41.2%, and is comfortable going up to 45-50% debt-to-assets.
We still see value in ART as a recovery play. We had previously projected a flat FY10F RevPAU. Keeping 1) FY09 performance; 2) manager guidance; and 3) our expectations for a recovery in corporate travel in mind: we now expect a pick-up in RevPAU in Singapore, China and Australia this year itself. We hike up our FY10F revenue and distributable income estimates 7-10% over previous estimates. We have also adjusted our WACC assumption down slightly. Our fair value estimate is accordingly up 10% from S$1.25 to S$1.38. Maintain BUY.
PST – DBS
Steadily improving outlook
• 4Q09 DPU payout of 0.83UScts as per expectations
• 70% DPU payout ratio in line with strategy to conserve cash for acquisitions
• Key customer CSAV concludes 2nd round of equity fund raising, credit ratings show improvement
• Raising FY10 DPU estimates by 15%, upgrade to HOLD; TP raised to US$0.30
Operations stable. PST announced a DPU of 0.83UScts for 4Q09, very much in line with our expectations. All key numbers – revenue, operating profit and net profit – were largely unchanged on a sequential basis. Distributable income of US$4.9m (up 1% q-o-q) amounted to roughly 70% of the net cash generated – unchanged from 3Q09, and is in line with management’s strategy of conserving cash with a view of acquiring new vessels at attractive valuations.
Outlook on the CSAV front looks better. CSAV recently concluded a second round of equity raising worth US$290m, paving the way for the 3rd round of capital injection (US$360m) from German ship owners – by way of charter rate cuts – which was conditional on the success of the first two rounds of fund-raising. Credit rating agency S&P, while reaffirming its “B-” credit rating for CSAV recently, removed CSAV from the CreditWatch list and noted that the company’s financial flexibility had improved. S&P also maintained its “BB-” rating for PIL in its last update.
Upgrade to HOLD. Currently, our FY10 numbers assume a 30% cut in charter rates for the CSAV vessels, but we believe the probability of such a cut may be lower now, given the improving industry fundamentals in general and CSAV’s balance sheet in particular, and the fact that PST’s 2 ships
could be well below CSAV’s radar for renegotiations. Thus, we now ascribe a 50% probability to the event of a rate cut, and raise our FY10 DPU estimate to 3.0UScts from 2.6UScts earlier. Our TP is likewise revised to US$0.30, pegged to 10% target yield, based on counterparty risk profile. Upgrade to
HOLD. A favourable resolution to the CSAV saga could be a key re-rating catalyst, as would be DPU accretive acquisitions.
CCT – OCBC
Portfolio reconstitution on the cards
Results above expectations. CapitaCommercial Trust (CCT) reported its 4Q09 results yesterday that came in above our expectations. Net property income for 4Q09 increased by 21.9% YoY and 3.8% QoQ to S$80m, exceeding our estimate by 3.2% due to lower property expenses, tax and trust expense. Its investment properties had also been revalued downwards by S$327.6m, or 5.4% of its prior valuation, to S$5.7b. This resulted in a 6.6% QoQ decline in its NAV and an increase in its gearing from 31.2% (end 3Q09) to 33.2%. For the quarter, a DPU of 1.88 S cents has been declared, translating to an annualized yield of 6.4%.
Unlocked value for Robinson Point. CCT had signed the S&P agreement with AEW Capital Management to sell Robinson Point for S$203.25m (S$1,527 psf on NLA). A gain of S$19.2m is expected to be recognized from the transaction. Sales proceed from Robinson Point is unlikely to be returned
to unitholders as CCT wants to retain the cash for reinvestments, targeting at Grade A office buildings.
Starhub Centre is the potential game changer. CCT also announced that it is currently doing an asset plan review for Starhub Centre, which has already obtained Outline Planning Permission from URA to change its use to a mix of residential (max 80% of GFA) and commercial. We believe that converting Starhub Centre from office to residential use would be a sensible move to extract value for unitholders, given its low occupancy rate and prime location. A high-end residential project there could be sold at S$2,000 psf to S$2,500 psf and based on our assumptions, developers could offer as much as S$301m-S$362m (12.4%-35% premium over book value) for Starhub Centre. The change of use is still subject to other government authorities’ approval and final plan for Starhub Centre is still being evaluated.
Fair value raised to S$1.16; Maintain HOLD. In view of the resilience in occupancy rates of CCT’s Grade A office buildings, we have raised our FY10 occupancy rate assumption from 95% to 98%. Our RNAV estimate has now been raised to S$1.16 (previously S$1.13), which has also factored in the
gains from Robinson Point divestment. Pegging at parity to our RNAV, we derive a fair value of S$1.16. For FY10 and FY11, we expect DPUs of 6.7 S cents and 6.6 S cents, translating to DPU yields of 5.6% per annum. With a projected total return of 3.8%, we maintain our HOLD rating on CCT. Key re-rating catalyst will be the outcome of the asset plan review for Starhub Centre.
CCT – CIMB
Divestments to come
• Results in line; maintain Underperform. Full-year results met Street and our expectations (101% of our estimate). Changes in our assumptions, reflecting more positive occupancy and lower cost of debt, raise our FY10-11 DPU estimates by 8-13%. We also introduce FY12 estimates. Following our upgrade, our DDM-based target price rises to S$1.09 from S$1.01 (discount rate 8.1%). Nevertheless, maintain Underperform as we expect negative rental reversions to set in from FY10. Possible re-rating catalysts could come from any positive portfolio repositioning, to improve the asset quality in its portfolio.
• Full-year DPU of 7.06cts (CIMB-GK 7.02cts). DPU declined 35.8% yoy due to increased units from a rights issuance in 2009. Net property income of S$300.2m was up 28.6% yoy mainly on positive rental reversions, full-year contributions from One George Street and Wilkie Edge and lower property-related expenses.
• Robinson Point sale to reduce exposure to non-Grade A assets. CCT announced a sale of Robinson Point to AEW Asia. The sale price of S$203.25m (S$1,527psf) is 11% above the property’s valuation of S$182.5m (S$1,370psf) and 70% above CCT’s purchase price of S$120m (S$901psf). Proceeds will be used to acquire Grade A assets although the time line for such acquisitions remains vague. The next asset under review would be StarHub Centre at Cuppage Road. The Urban Redevelopment Authority has given outline planning permission to change the use of this property from commercial to residential.
• Changes to our assumptions. We view the divestment of non-core assets positively and are less pessimistic on the degree of rental and occupancy erosion in 2010 in view of good progress in forward renewals, CCT’s ability to sustain occupancy and rents, and Singapore’s economic outlook. We raise our occupancy assumptions for CCT’s top-4 office buildings to 98-99% (from 92-100%); and lower our cost-of-debt assumptions to 4% (from 4.8%) in view of a much strengthened balance sheet after the divestment. Asset leverage following the sale of Robinson Point is expected to fall to 31.1% (from 33.2% as at Dec 09).