CDLHTrust – OCBC
Stalling of rally at key resistance heralds possible near-term downside
– CDL Hospitality Trust could be facing more near term downside as the price seems to have stalled at its key $0.845 resistance (also hit the upper Bollinger band) on relatively high volume. A lower close today would confirm the bearish price reversal.
– And downside momentum looks set to accelerate in the near term. The RSI has already turned down just shy of the overbought region while the stochastic indicator is about to make a negative crossover inside the overbought region. The Accumulation/Distribution indicator also made a sharp bearish reversal yesterday.
– We expect the stock to find initial support at $0.79 (2-month uptrend line and centre Bollinger band), breaking which, the next key support is likely at $0.72 (minor troughs in May ’09 and Jun ’09 and lower Bollinger band).
– Above the $0.845 key resistance, we see $0.92 (minor peak in Oct ’08) as the next resistance.
PLife – Phillip
Inflation linked revenue model provides resiliency. Over 80% of revenue is derived from hospitals in Singapore while the rest are from nursing homes and healthcare facilities in Japan. Plife REIT collects rental from its tenants based on an inflation linked formula. In August 2008, rental for the Singapore hospital was revised up 6.25% (average CPI over the 12 preceding months plus 1%). Although we have seen CPI reading sliding off from 6.7% in Sep 08 to register a negative reading of – 0.3% in May 09, unless CPI continuously register a monthly reading of –9.5% for the next four months to offset the positive readings in the prior nine months, the CPI +1% formula ensures that rental revenue grows at the minimal rate of 1%. In our forecast, we have assumed a 2% growth and maintain our projections at the moment, though we think surprise may be on the upside.
Credit rating downgrade a non-issue. Fitch Ratings downgraded Plife REIT longterm issuer default rating from BBB+ to BBB with a stable outlook. We view the rating cut as a non-issue as fundamentals remain sound. Gearing is currently 23% and Plife REIT has total debt of $247.5 million with interest cover of 6.7. $34 million of loan is due in the 2nd half of 2010 while the rest are due in 2011.
We maintained our forecast numbers and reassert our optimism in Plife REIT. Plife REIT is not subjected to the cyclicity of the economic cycle unlike other REITs. We raised our fair value estimate to $1.18 due to lower risk premium input in our DCF model.
Risk factors. Risk includes a prolong deflation scenario, which will cause our revenue estimates to be excessive. However the variance is not significant as changes to our forecasted DPU is less than 1%. We think the main risk would be a further credit downgrade as the maturity of the loans draw near and Plife REIT has not announced its refinancing plans.
Suntec – Phillip
Our fundamental view of Suntec REIT has not changed. We feel revenue is still being subjected to pressure as Singapore goes through the recession. We feel key issues for the management will be to maintain the rental while keeping occupancy of the portfolio stable.
Suntec REIT has 64% of its portfolio NLA exposed to the office sector and 34% exposed to the retail sector. 77% of office leases are expiring over the next 3 years and we are concern about falling reversionary rent achieved by the expiring office leases. Although expiring leases rent is lower than the passing average rent, however average rent for leases secured has peaked out in 2Q08 and has fallen 26% in 1Q09. Furthermore, Suntec REIT office portfolio could come under pressure from the completion of over 9.2 million sqf of office space in the core downtown area over the next five years. Given that our outlook is for a bottoming of office rent in 2010Q4, we would expect the gap between expiring leases and renewal leases to converge with a negative bias.
Suntec has no near term refinancing concern. It has successfully secure $825 million of term loan in April 2009. The current gearing is 35%. Although management has not indicated any acquisition plans, we believe that Suntec will build up its equity balance for two reasons; in anticipation of asset devaluation and to ready itself for any opportunities that arise for its next phase of growth. Currently Suntec owns approximately 57% of Suntec City Office Towers, it may resume its program to acquire strata office units not presently owned.
Valuation & recommendation. We revise our average rent and occupancy assumptions and reduce our DPU forecasts over FY09F-FY11F by 4%-9%. We maintain our Hold rating and raise our fair value from $0.69 to $0.94 mainly on lower WACC assumptions.
Cambridge – Phillip
CIT has no near term refinancing worries, as its single loan maturity of $390 million is due in 2012. The current gearing is 40%. Although it has not mention any plans of acquisition, CIT has a LTV covenant of 50%, which effectively allows it to gear up a further $200 million. However we feel that acquisition using pure debt to push the gearing limit is not a prudent move as seen in the last round of panic refinancing in the REIT sector. Therefore we believe with the three years time frame to the next loan maturity date, CIT will undertake some form of recapitalization measures to fuel its growth plans.
Property portfolio continues to perform within expectations. Occupancy rate for 1Q09 was 99.2%. The current focus for management is to actively manage its property portfolio so as to maximize the usage of space and renegotiate leases to dilute expiry profile concentration. Management has also indicated asset rebalancing whereby the REIT divests smaller underperforming assets.
We had assumed a 3% vacancy rate for 2009F and 2010F. Demand for industrial space should be buoyant from 2011 as supply is expected to stay flat according to URA schedule of industrial space. We raise the fair value estimate from $0.31 to $0.44 on lower assumption of WACC at 9.96 versus our previous assumption of 11.4. We upgrade our recommendation from Hold to Buy.
FCOT – BT
SINGAPORE – Shares in Singapore’s Frasers Commercial Trust dropped as much as 12.5 per cent on Wednesday after it announced plans to raise $213.9 million (US$128.5 million) in a three-to-one rights issue and would borrow $675 million to refinance debt maturing this year.
The property trust had gross borrowings of $945.5 million, of which about $624.5 million will mature in the second half of 2009, the company said in a statement late on Tuesday.
The rights issue is fully underwritten by DBS Bank, BNP Paribas, Oversea-Chinese Banking Corp and Standard Chartered’s Cazenove Asia unit.
The benchmark Straits Times Index inched 0.01 per cent higher as of 0354 GMT on Wednesday.