a-iTrust – DBS
Underlying Portfolio Strength
• Results were in line with estimates
• Secured income base
• Acquisition possibilities present upside surprise
• Upgrade to BUY, TP S$0.65 based on DDM
Results in line. Ascendas India Trust (AiT) reported 4Q09 results in line with our expectations. Gross revenues and NPI grew by 13% and 8% to S$17.4m and S$16.1m respectively. Growth was driven by (i) income contribution from Crest, (ii) positive rental reversions, (iii) higher operations and maintenance income. Distributable income came in 25% higher to 15.6m, translating to a DPU of 2.05 cts. For FY09, AiT delivered a DPU of 7.54 Scts, translating to a yield of 15%.
As of 31st March’09. AiT recorded a 5% devaluation on its properties. This was a result of more conservative cap rates used by valuers. NAV declined to S$0.89 as a result.
Secured income base. Looking ahead, AiT has only 13% of its NLA up for renewal in FY10, we believe that AiT should be able to keep occupancies relatively stable given (i) each tenant accounted for <4% (ii) strong retention rate of 89% for expiring leases in FY09.
Headroom for growth. Potential upside surprise will come from its ROFR from Ascendas Land Int’l & Ascendas India Devt Fund, which are not currently factored in our models. Current gearing of 9% presents headroom of S$220m before reaching 35% gearing.
Upgrade to BUY, TP $0.65. At current levels, AiT presents attractive value for investors looking to leverage on the mid-long term growth prospects of India’s IT parks space while receiving a FY10-11 DPU yield of 12-14%. Upgrade to BUY, TP S$0.65 based on lower cost of equity assumptions (CE of 15%), in line our DBSV economist view of a bottoming of India’s economy in 1H09.
Suntec – Phillip
Suntec REIT reported gross revenue for 1QFY09 of $64.9 million (+16.0% y-o-y), net property income was $49.2 million(+15.4% y-o-y). Distributable income was $46.4 million(+18.2% y-o-y). DPU for the quarter was 2.918 cents (+15.9% y-o-y).
Strains of recession showing. Occupancy came off slightly in 1QFY09 with office occupancy of 97.4%(-2.5% y-o-y) and retail occupancy of 98.8(-0.01% y-o-y)%. Average rent for leases secured in the quarter was also lower at $9.96 vs 4QFY08 average rent of $11.20. Meanwhile, average rent for expiring leases is $6.64 vs 4QFY08 average rent of $5.42. These indicate that while passing rents are playing catch-up to the spot rates, the gap between passing rent and spot rent is also converging much earlier due to falling spot rates. Retail portfolio average rent registered slight increase from $11.02 in 4QFY08 to $11.05 in 1QFY09.
Highlight of the day. Suntec REIT announced refinancing details of its $825 million debt that is maturing this year. $700 million would be refinanced with a 3-year term loan and the other $100 million with a 7-year term loan. All-in interest cost including upfront fees is at a margin of 3.75% on a floating basis. With the refinancing plan in place, the next loan maturity is in 2011 with loan amount of $532.5 million.
The announcement of the refinancing is definitely positive news for Suntec REIT. The ability to secure funding of $825 million at comparatively low interest margin demonstrates the lenders’ confidence in the REIT. Our next concern is the impact of the economy on Suntec REIT. As mentioned earlier, average rents for new leases fell 11% in 1QFY09 from 4QFY08. Approximately 46% of office leases are expiring in 2009 and 2010, which we feel could be subjected to greater rent pressure. We maintain our Hold recommendation with a fair value of $0.69.
Cambridge – DBS
Looking Steady
At a glance
• Results were in line with our estimates
• Only 6% of income to be renewed in next 4 years
• No ST refinancing requirements
• Maintain BUY, TP S$0.38
Comment on Results
Stable performance. Cambridge Industrial Trust (CIT) 1Q09 results were line with expectations. Gross revenues and NPI grew by 4% and 3% respectively to S$18.3 and S$16.1m respectively. The growth in performance was mainly as a result of additions from properties purchased in 2H08 and rental escalation from 21 of its properties. On a QoQ basis, performance remained flat. Distributable income was 19% lower largely due to higher interest cost on the new debt and management election to receive their fees in cash. DPU for 1Q09 was 1.291 Scts.
Gearing at 39.9% with interest coverage ratio (ICR) of 3.6x. These are within its loan covenants of an ICR of 2.5x and gearing of 55%. We note that CIT’s bankers will have the right to lockup cash proceeds in the event of CIT breaching the 50% gearing level. However, we view that it is unlikely to be breached, as it will involve a further estimated 20% reduction in asset values.
Portfolio valuation in 2Q09. Management informed us of the need to perform semi-annual valuations for its properties by its bankers. While we expect CIT to report further asset values write-downs in 2Q09, the quantum of devaluation should be mitigated by the fact that CIT properties are under-rented (signed on long term leases back in 2006) when compared to current market rents.
Recommendation
Maintain BUY, TP adjusted to S$0.38. CIT is expected to continue delivering a consistent FY09-10F DPU yield of 16% given good income visibility with (i) a secured income stream with average lease of 5.5 years, (ii) having only 6% of topline to be renewed in the next 4 years, (iii) locked in debt re-financing till 2012.
Cambridge – Phillip
On a quarter-on-quarter basis, gross revenue for 1QFY09 was flat at $18.4 million (+4.5% y-o-y), net property income increased 6.6% to $16.1 million(+3.2% y-o-y), distributable income decreased 5.5% to $10.3 million(- 18.2% y-o-y). DPU for the quarter is 1.291 cents.
CIT’s gross revenue for 1QFY09 registered flat growth, which was in-line with expectations, given there wasn’t any catalyst to earnings. Portfolio occupancy remains at a high 99.2%. However distributable income fell 5.5% and DPU fell 6.0% mainly due to higher interest expense incurred on the new loan.
CIT refinanced its loan in Feb 2009 and has no refinancing worries for the next three years. The refinancing comes at substantially higher interest of 5.9% and is the main reason for the decrease in DPU. Our previous estimate was an interest cost of 5.0%. Current gearing is 39.9%.
Without the overhang of refinancing worry, the only concern is whether CIT can maintain its portfolio occupancy. We continue to assume a portfolio vacancy of 3%. Revenue growth is supported by fixed rental escalation built into leases. We tweaked our assumptions to account for lower property expenses due to government rebates and also higher interest expenses vs our previous assumptions. CIT is currently trading at 60% discount to NAV. We have a forecasted FY09F DPU of 4.73 cents, which translates to 16.6% dividend yield. We apply WACC of 11.4% and terminal growth of 1% to our DCF valuation. Fair value is raised from $0.27 to $0.31. We maintain our HOLD recommendation.
StarHill Gbl – DBS
Results in line
At a glance
• Results were in line with our estimates
• 39% of space up for renewal in 2009-2010
• Inexpensive but catalyst appear lacking in near term
• Maintain HOLD, TP S$0.60
Comment on Results
Stable performance. Starhill Global REIT (SGREIT) reported 1Q09 results in line with our expectations. Gross revenues and NPI grew by 13% and 17% to S$34.3m and S$27.1m respectively. NPI margins improved to 80% from 76% due to (i) higher revenues post its Toshin rent review in July’08, (ii) positive rental reversions for certain office space (+110% from preceding rents), (iii) aided by savings from property rebates enjoyed during the quarter. Distributable income came in at 7% higher yoy, translating to a DPU of 1.87 Scts. For 1Q09, SGREIT is retaining c.5% of income available for distribution for working capital purposes.
Strong financial metrics. Gearing remained relatively low at 30%, interest cover at 4.9x. while NAV stands at S$1.43.
39% of space up for renewal in FY09-10. Looking ahead, SGREIT has c. 15%(FY09) and 24%(FY10) of its income up for renewal in an increasingly tough operating climate. We estimate asking rents for its office and retail space to decline by 10-50% over the next 2 years. Vacancy levels is also estimated to increase by 5 -10%.
Recommendation
Maintain HOLD, TP maintained at S$0.60. SGREIT currently trades at 0.3x P/BV, below peers average of 0.4x P/BV. Newsflow from discretionary shopping is expected to continue remain lackluster, capping re-rating opportunities. As such, maintain HOLD, TP $0.60. Currently, SGREIT offers a FY09-10 yield of 14-15%.