Cambridge – Phillip
3QFY09 Results
Cambridge Industrial Trust (CIT) reported results for 3QFY09. CIT recorded gross revenue of $18.7 million (+2.1% yoy, +1.2 qoq), net property income of $16.4 million (+0.9% yoy, +2.2% qoq) and distributable income of $11.2 million (-5.5% yoy, +4.6% qoq). DPU for 3QFY09 is 1.344 cents (-9.7% yoy, flat qoq).
Gross revenue showed slight improvement over the quarters on the back of rental escalation of leases and improving occupancy. Correspondingly, distributable income also increased over the quarters, however DPU for 3QFY09 was impacted by the dilution of the placement exercise, which saw 71 million new units being issued.
Current gearing of CIT is 42.6% and CIT total debt of $390.1 million matures in Feb 2012. Total portfolio size is $880.4 million and management expects asset valuation to hold.
Divestment plan to continue. The management of CIT indicates that asset rebalancing is a long-term action plan for CIT. Currently it has identified properties that are non-core to the portfolio and has plan to divest those properties. Aside from divesting assets, management is also considering entering into joint development projects with reputable developers.
Dividend reinvestment plan. CIT has proposed a dividend reinvestment plan (DRP) whereby investors can opt to have their quarterly dividend payout in the form of units instead of cash.
The proceeds from the asset divestment and the DRP will be used to reduce gearing. The management hopes to bring long term gearing down to 30-35%.
Valuation and recommendation. We feel the underlying portfolio has perform better than expectations. Occupancy rate has held up well and arrears average around 1.4% of gross rent. CIT maintains an average of 15.7 months of security deposit. We feel the main overhangs on the REIT are the high gearing and the relatively high interest cost, which are both a drag on DPU. Although both the divestment and DRP could bring down gearing, it has to be balance with accretive acquisitions in order to be value-add to investors. We revise up our occupancy rate and also factor in the dilution of the recent placement. Our fair value is lowered from $0.45 to $0.41. Our FY09F DPU is lowered from 4.93 cents to 4.83 cents. Maintain Hold recommendation.
ART – DBS
Sitting pretty
• Sequential improvement in 3Q09 on the back of improving operational performance
• RevPAU up 4% qoq from higher occupancies
• Maintain BUY, TP S$1.25
Improving operations. Ascott Residence Trust (ART) reported 3Q09 results in line with expectations. While revenues and gross profits were 17% and 21% lower yoy to S$44.4m and S$22.0m owing to a exceptional Beijing Olympics last year, performance showed a sequential improvement from rising demand seen in their Singapore, China, Japan and Indonesian operations. Distributable income came in at S$11.8m (-25% yoy, +7% qoq), translating to a DPU of 1.92 Scts.
RevPAU up 4% qoq – a good sign. We are encouraged by further signs of improvement in ART’s core markets in Singapore, China and Japan. As such, we are adjusting our occupancy estimates upwards by up to 2% to reflect our more positive outlook for travel demand and expansion in annual travel budgets of corporate, thus fueling demand for accommodation. DPU forecast for FY10 and FY11 adjusted up by 2.4% and 2.6%.
Maintain BUY, TP S$1.25. On the back of an improving travel outlook, we are positive that ART will be able to deliver a sustained FY09-11F DPU yield of 6.6 – 7.5%. Maintain BUY, with revised TP of S$1.25 on slightly lower WACC assumptions. (-25 bps). Further upside catalysts will include (i) stronger than expected RevPAU performance in 4q09, (ii) accretive acquisitions.
ART – CIMB
Improving performance, but upside limited
• Downgrade to Neutral from Outperform; unchanged DDM-based target price of S$1.21. ART’s 3Q09 results met Street and our expectations. Although revenue per available unit (REVPAU) improved as we anticipated, and although we remain positive on the hospitality sector, ART has already outperformed since our upgrade early this month, pricing in the positives. Hence we downgrade our recommendation to Neutral from Outperform.
• Results in line. YTD DPU of 5.48cts forms 75% of our full-year forecast. 3Q09 DPU of 1.92cts (26% of full-year forecast) was down 26.4% yoy due mainly to weaker demand for serviced residences in Singapore and China as a result of the global economic slowdown. However, DPU improved 7.3% qoq as REVPAU strengthened across the board. Tighter control of property-related expenses also lifted gross profit by 6% qoq to S$22m.
• Portfolio REVPAU grew. REVPAU, which had been declining since 4Q08, finally grew 4.2% qoq in 3Q09 to reach S$124. The recovery was led by Japan (+24.4% qoq) on the back of a stronger yen, Singapore (+14.9% qoq) and China (+6.8% qoq). REVPAU in three out of its seven countries remained in negative region, including Australia (-6.2%), Vietnam (-1.6%) and the Philippines (-3.5%).
• No changes in assumptions. We continue to expect REVPAU growth to be led by Singapore (+30%), the Philippines (+15%) and Vietnam (+10%) in 2010. Our DPU estimates and DDM-derived target price of S$1.21 are unchanged (discount rate 9.1%).
ART – OCBC
3Q outperforms expectations
Outperforms expectations. Ascott Residence Trust (ART) posted S$44.4m in 3Q09 revenue, down 16.4% YoY but up 3.3% QoQ. Similarly, gross profit declined 21% YoY but increased 5.6% QoQ to S$22m. Portfolio RevPAU for the quarter was S$124 per day compared to S$163 in 3Q08 (-23.9%) and S$119 in 2Q09 (+4.2%). Results outperformed expectations, with revenue and gross profit beating our estimates by 3.5% and 9.9% respectively. 3Q DPU of 1.92 S cents was 6.9% higher than our estimate of 1.80 S cents. Note that distributions are paid on a half-yearly basis.
Occupancy gains drive RevPAU. At 2Q09 results, we had noted that performance in major markets seemed to be leveling off or recovering slightly. This trend continued in 3Q, with improving occupancy levels driving QoQ increases in RevPAU. Singapore was a star performer with RevPAU up 14.9% QoQ, while China saw a smaller QoQ increase of 6.8%. These two major markets are still off 32-44% from their peaks in 3Q08 (an exceptional Olympics-fueled quarter for China). Japan recorded a 24% QoQ increase in RevPAU, which we understand is due largely to forex effects as well as slight occupancy improvements. RevPAU in the other markets was stable or slightly negative QoQ due primarily to forex and/or seasonal effects.
Guidance hopeful but cautious. The manager said that “the severe challenges posed by the global economic downturn to the hospitality industry have eased”. It guided that while it remains cautious of the pace and extent of the recovery, it is “confident of the longer-term growth in the markets” in which ART operates. It also said it is accelerating asset enhancement plans for selected properties. Our view is that the worst is behind ART – we believe Pan-Asian markets, where ART operates, will continue to be attractive FDI destinations. We think ART may shine in the coming months as corporate spend and travel gradually return. The challenge now is increasing, and sustaining, occupancy at levels that allow for a successful increase in unit rates.
Valuations remain attractive. We have revised our estimates to reflect actual 9M09 figures. Our fair value estimate of S$1.19 (unchanged) is derived by charging a 15% discount to our SOTP value of S$1.40 for ART. Fresh equity could be utilized to support asset enhancement plans and fund acquisitions, but we believe our fair value estimate is covered even when fund-raising risks are quantified. ART has re-rated 10% since our last update in September; we continue to find valuations attractive. Maintain BUY.