FCOT – DBS
Nearly there
Comment on Results
• Results slightly below expectation due to higher interest cost
• Gearing at 58%
• 19% of NLA up for renewal in FY09
• Maintain HOLD, TP S$0.18
Operationally weaker yoy. FCOT reported 1Q09 results which were slightly below expectations. Gross revenues and NPI fell by 16-17% yoy to S$24m and S$18.7m respectively on the back of (i) weaker earnings from its Australian properties due to weaker forex and loss of income support from Central Park, (ii) lower draw-down of income support from Keypoint (S$0.9m vs S$2.3m in 1Q08) and (iii) lower contribution from Cosmo Plaza due to the loss of a major tenant.
Further DPU erosion from increasing interest cost. DPU of 0.72 Scts for 1Q09 (-56% yoy, -47% qoq) was largely due to higher than projected interest cost on the extension of its debt facility. Our forward FY09-10 DPU estimates are adjusted downwards to 3.4cts to reflect higher interest cost on its debt.
Writing down a further S$143m off book. FCOT recorded a further devaluation of its portfolio in 1Q09, a reflection of an updated realizable value of its properties in current environment. Management believes that further write-down of its property value is unlikely in the immediate term. NAV is adjusted downwards to S$0.79. As a result, gearing level is hiked up to 58%.
19% of space up for renewal in remaining quarters. A majority of expiring leases are from Keypoint which has an average passing rent of S$4.45 psf pm, we expect continued positive rental reversions given its low base.
Recommendation
Maintain HOLD, TP S$0.18. We believe that improving its balance sheet strength will remain key for a possible re-rating of the stock in the near term. Maintain HOLD, TP S$0.18 based on DCF. FCOT currently offers a prospective FY09-10F yield of 19%.
AREIT – BT
A-Reit to develop building for lease to SingTel
TOP for the $175m project is expected in the first quarter of 2010
ASCENDAS Real Estate Investment Trust (A-Reit) has signed a deal with Singapore Telecommunications (SingTel) to develop a high- tech industrial building at Kim Chuan Road for a total cost of around $175.4 million.
The proposed development is a built-to-suit project for lease to SingTel. SingTel will lease the entire building for an initial tenure of 20 years with annual rental escalation with an option to renew for a further 10 years on expiry.
The land, measuring around 13,879 square metres, will be used by A-Reit to build a nine storey high-tech building with the total investment for the base building and land set at around $99.6 million.
A further investment of up to $75.8 million would be made in the installation of additional mechanical and electrical equipment to enhance the building specifications to the requirements of SingTel.
The development is within walking distance to the future Tai Seng MRT station and is next to the Kim Chuan Telecommunications Complex, an existing building owned by A-Reit which is currently also leased to SingTel.
The building is expected to have a gross floor area of approximately 32,862 square metres on completion.
The tenure of the land comprises the unexpired portion of a leasehold term of 99 years commencing from March 31, 1992. The Temporary Occupation Permit (TOP) for the development is expected in the first quarter of 2010.
Upon the execution of the sale and purchase (S&P) agreement, A-Reit will hand over to SingTel an on-demand banker’s guarantee for the deposit amount of $1.6 million representing 10 per cent of the purchase price of $16 million for the piece of land.
The land valuation was done by DTZ Debenham Tie Leung on April 1 this year.
Also on completion of the S&P agreement, the two parties will enter into the agreement for lease.
A-Reit will fund the development by debt and/or equity.
The project is expected to increase A-Reit’s net profit for fiscal 2008-09 by about 2 per cent, assuming that the project was completed at the beginning of that financial year and was funded using 100 per cent debt funding.
CCT – DBS
Holding up for now
At a Glance
• Results slightly above expectations
• Lifted by new contributions, positive rental reversions and cost savings
• Visibility in office sector remain weak
• Maintain Hold with TP of $1.11
Comment on Results
Good showing in 1Q09. CCT’s distribution income of $45.4m (27% yoy, +20% qoq) translated to a DPU of 3.24cts and came in slightly ahead of market and our estimates. The better showing was achieved on a 37% yoy increase in topline to $97.5m on new contributions from OGS, Wilkie Edge and positive rental reversions. During the quarter the group renewed/leased 0.38sf of office space (14% of FY09 expiries) at 49% higher rents than preceeding levels. Occupancy remained at 96.7% at end Mar 09. NPI rose 41% yoy to $69.9m on implementation of cost savings measures and expense ratio dipped 5% pt to 28%. The group also secured refinancing for $160m of ST debt at 3% all-in interest margin.
Locked in 89% of forecast gross rental income for 2009. Outlook for the office sector remains soft in the near term owing to poorer economic activity and the large new incoming supply in the next 3 years. CCT’s strategy would remain focused on existing tenants and maintaining high portfolio occupancy. To date, it has locked in 89% of its forecasted gross rental income for FY09 or c$318m in committed leases. It has a remaining 7.7% of office and 3.9% of retail lease to renew this year and a further 27% and 23% of leases expiring in FY10/11. Given the current weaker market rents and higher average of some of the upcoming expiries, the reversion gap i s expected to narrow significantly.
Recommendation
Maintain Hold. We are maintaining our Hold call but have lifted our TP to $1.11. While we recognize that CCT’s valuation is inexpensive, at 0.3x P/bk NAV, the overhang from refinancing and/or potential for capital management exercises remains given that 58% of its total debt (72% if CBs get put) is maturing over 2010/11. Moreover, gearing is at 38.3% and would rise to 45-50% on a 15-20% depreciation of asset values, a scenario that is not improbable given the soft office outlook. The stock is currently yielding 14.5% and 12.9% in FY09 and FY10 respectively.
CDLHTrust – DBS
Re-financing secured
• Slightly ahead of expectations due to better than expected NPI margins.
• RevPAR of S$151 in line with projections.
• Securing new financing, no further re-financing till FY2012.
• Maintain BUY, TP S$0.74 based on DDM
Better than expected NPI margins. Gross revenues of S$22.5m (-19% yoy , 20% qoq) was in line. Hotel operations were weak on a portfolio basis; RevPAR declined to S$150 (- 27% yoy), which were in line. However, higher than projected net property income margins of 91.5%, were ahead of our projected 88%. This was largely due to successful cost containment measures, which somewhat offset the decline in room revenues. As a result, NPI of S$20.6m (-21% yoy, -5% qoq) was slightly ahead of projections. Distributed income came in at S$16.5m (-30% yoy, +11%qoq), translating to DPU of 1.97 Scts.
No further financing till 2012. CDL HT has successfully secured re-financing for ST expiring loans. The new facility amounts to S$350m comprising of a 3-year S$270m term loan and an S$80m committed revolving facility with DBS Bank. Interest rate for the new facility is lower than projections.
Maintain BUY, TP S$0.74. Valuation of 0.4x P/BV is attractive. While short term newsflow is expected to remain negative, as Singapore’s largest hotel owner, we believe CDL HT presents long term value to investors looking to leverage on the medium term prospects of the local tourism industry. Maintain Buy, TP S$0.74 based on DDM. CDL HT currently offers a prospective FY09-10F DPU yield of 12%. Risk to earnings: A sustained outbreak of Swine Flu virus impacting regional travel.
CCT – OCBC
Results above expectations
Results exceeded our expectations. CapitaCommercial Trust (CCT) delivered a strong set of 1Q09 results that exceeded our expectations. Gross revenue increased 34.5% YoY to S$97.5m but on a QoQ comparison, the increase was a marginal 0.3% as higher contributions from the positive rental reversions of the office buildings were offset by the weaker contribution from Raffles City’s hotel revenue. Property operating expenses increased 27.9% YoY due to its acquisitions but fell 12.6% QoQ as cost savings measures took effect. As such, net property income for 1Q09 increased 40.8% YoY and 6.5% QoQ to S$69.9m. DPU for 1Q09 has also increased 25.1% YoY and 19.6% QoQ to 3.24 S-cents, translating to an annualized yield of 15.2%.
89% of FY09 forecast GRI locked in. During the first 4 months of 2009, CCT secured new leases and renewals for 335,800 sq ft of spaces. Positive rental reversion on a weighted average basis was ~49% higher than previously signed rents. This was also better than our expectations as we had expected weaker reversionary growth from CCT due to the declining office rental market. With that, CCT has now locked in 89% of our forecast gross rental income (GRI) for FY09, which amounts to S$318.1m. An additional GRI of S$35.8m had been locked in since CCT announced its FY08 results, which further enhanced DPU visibility for FY09.
Completed refinancing for FY09. CCT also announced that it had secured commitment for a 3-year secured term loan of up to S$160m. The loan is secured against HSBC Building and the all-in margin for the term loan is 3% per annum, which is lower than what we have expected in the current tight credit market. As at end-1Q09, CCT had a gearing level of 38.3% which we think, is unsustainable in light of the falling rents and capital values of office buildings in Singapore. With another S$885m and S$1,012m (assuming early redemption by bond holders) of borrowings due for refinancing in FY10 and FY11, we continue to believe that an equity fund raising will be inevitable over the mid-term.
Fair value raised to S$1.33; Maintain BUY. After a better-than-expected positive rental reversions in 1Q09, we are now raising our FY09 and FY10 DPU forecasts to 11.2 S-cents (previously 10.2 S-cents) and 9.9 S-cents (previously 8.7 S-cents) respectively, which translate to attractive FY09 and FY10 DPU yields of 13.1% and 11.6%. Our fair value has now been raised to S$1.33 (previously S$1.06). We maintain our BUY recommendation for CCT.