CDL H-Trust – UOBKH
1Q08: DPU increased 63.4% yoy to 2.86 cents, driven by the strong performance of Singapore hotel portfolio
CDL Hospitality Trust (CD REIT) released another set of good results. Net property income surged 55.8% yoy to S$26.1m, on the back of 55.1% yoy revenue growth. This is due to strong performance of its Singapore portfolio. Distribution per unit (DPU) was up 63.4% yoy to 2.86 S cents, which translates into annualized DPU 11.5 S cents or an annualized DPU yield of 6.0%. Results are slightly ahead of our and consensus forecast. 1Q08 DPU accounted for 26.5% of our full year estimate from the existing portfolio.
Strong performance in all hotels, especially its Singapore portfolio. All four Singapore hotels registered double-digit revenue growth in 1Q08. Revenue Per Available Room (RevPAR) surged 37.7% to S$208, the highest RevPAU growth since the listing. The average daily rate (ADR) of total portfolio increased by 38%, while the average occupancy rate (AOR) flat at 84.4%.
CD REIT’s stable occupancy rates and rising room yield is laudable and above the industry average. The hotel industry in Singapore have seen 1-4 ppt dip in AOR on average in Jan-Mar 2008 as hoteliers forgo a few ppt occupancy rates for higher room yields. In our view, CD REIT’s decent hotel portfolio cater to both business and leisure customers and thus management can shift market mix to maximize yields while able to maintain occupancy rates.
DPU of 2.86 S cents is 63.4% higher yoy. This translates into full-year DPU of 11.5 S cents, or 2008 DPU yield of 6.0%.
Conservative property tax provision. 1Q08 is the first quarter that Singapore hoteliers feel the impact from the hotel property tax formula change. Being conservative, CD REIT nearly doubled its property tax provision in the quarter. Our forecast is also on the conservative side.
Scale down acquisition size assumption. We feel our previous S$300m acquisition assumed for each year in 2008-09 a bit optimistic, under current market uncertainties. Now we are assuming S$300m acquisitions to complete and contribute in 2009. We expect CDREIT to fund acquisitions fully by debt, in view of its ample debt capacity (Gearing ratio: 19.5% in 1Q08).
CD REIT has the right of first refusal to its sponsor’s (Millenium & Copthorne Hotels plc) Singapore assets. Copthorne Orchid Hotel, with about 440 rooms, could be a potential target for asset injection. Management maintain that Singapore, India and Vietnam remain the REIT’s preferred markets for acquisitions as the REIT is continuously looking for possible acquisition opportunities in Asia. Excluding acquisitions, CD REIT is priced at S$1.95.
Up our 2008 RevPAR growth assumption. The surprises from RevPAU growth is not unexpected (Refer to our report dated 12 Mar 08). We now lift our RevPAU 2008 growth rate from 10% to 15%. This is still much lower than what the industry data and CD REIT results in 1Q08 suggest. We remain cautious amid economic uncertainties and restrain ourselves from assigning a ????
Industry outlook still holds up well, despite the economic uncertainties. Singapore saw record numbers of tourist arrivals in the first three months of 2008, on track to realize 10.8m tourist arrivals target set by Singapore Tourism Board. Management has also indicated that the industry RevPAU growth in Apr 08 is as strong as that in the first three months.
Looking forward, the second half of the year is normally busier with Meeting, Incentive Travel, Convention and Exhibition (MICE) activities. Singapore is expected to hold the first Grand Prix night race in Sep 08. Various events underpin the demand for hotel rooms, barring a sharp downturn in the region. We are still positive on the sector in view of rising tourist arrivals and the hotel room crunch within the next two years in Singapore.
Maintain BUY. We cut our target price by 7.7% to S$2.40 based on the discounted cash flow model (WACC: 6.5%; terminal growth rate: 1.5%), mainly due to lower acquisition assumption. After netting off impact from lower acquisitions assumed and higher RevPAU growth, DPU edged down by 2.6%, 3.7% and 0.1% in 2008, 2009 and 2010 respectively. We continue to like CD REIT’s exposure on Singapore tourism sector. BUY.
CDL H-Trust – BT
CDL Hospitality Q1 available distribution surges
CDL Hospitality Trusts (CDLHT) has announced income available for distribution of $23.6 million for Q1 2008, a 91.5 per cent increase over the corresponding quarter last year.
CDLHT, a stapled group comprising CDL Hospitality Real Estate Investment Trust (H-Reit) and CDL Hospitality Business Trust (HBT), said income available for distribution per stapled security for the quarter rose 63.4 per cent year-on-year to 2.86 cents or 11.50 cents on an annualised basis.
Citing the 6.6 per cent year-on-year increase in visitor arrivals to Singapore in the first quarter of 2008, Vincent Yeo, CEO of M&C Reit Management Ltd, the manager of H-Reit, said: ‘As Singapore’s largest hotel owner by number of rooms, we are well positioned to take advantage of the very robust demand for transient accommodation in Singapore.’
Gross revenue for the quarter of $27.9 million was 55.1 per cent higher while net property income was $26.1 million, up 55.8 per cent.
Average occupancy rate for H-Reit’s Singapore hotels – Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King’s Hotel and Novotel Clarke Quay – actually fell marginally by 0.2 percentage points to 84.4 per cent.
However, Mr Yeo said this was more a function of the Reit manager, ‘managing for RevPar (room revenue per available room) growth’.
Mr Yeo also revealed that its market mix had changed with more business being contracted through corporate clients.
Indeed, RevPar increased by 37.7 per cent from $151 in Q1’07 to $208 in Q1’08.
Average daily rate (ADR) of $247 was 38 per cent higher compared to the same period a year ago.
The Singapore Tourism Board’s figures for gazetted hotels here in March show that the average room rate was estimated at $238, while the average occupancy rate was estimated at 87 per cent.
Mr Yeo said that it was also on track to make its forecast annual acquisitions of $200-$300 million.
In the quarter, Mr Yeo said that six of the 24 extended stay suites at the Grand Copthorne Waterfront Hotel were completed and the hotel has received positive responses from potential guests during the pre-marketing phase. All the suites will be launched officially by the end of this month.
Mr Yeo also added that ‘service apartments are within its ambit’, and he would not discount the possibility of acquiring a service apartment in the future.
At the end of yesterday’s trading, CDLHT’s unit price rose 6 cents to close at $1.92 per unit.
a-iTrust – BT
A-iTrust distributable hits $45.8m
ASCENDAS India Trust (A-iTrust) yesterday reported net property income of $60.5 million for the 12 months ended March 31, 2008 – up 51 per cent from $40.2 million the year before.
The improvement was driven by a 50 per cent jump in property income to $102.7 million year on year.
Distributable income for FY2007-08 was $45.8 million. This translated to distributable income per unit (DPU) of 6.09 cents, or 9 per cent higher than the forecast of 5.6 cents.
Based on a closing price of $1.04 a unit on March 31, the annualised yield was 5.86 per cent.
For Q4, DPU was 1.64 cents. With Q3’s DPU of 1.5 cents, a total of 3.14 cents will be paid on May 28.
A-iTrust was the first Indian property trust listed on the Singapore Exchange – in August last year. Its portfolio comprised four Indian IT parks at end- March.
A-iTrust said its asset portfolio has grown and the performance of its properties has improved. The occupancy rate for the portfolio is 96 per cent, and the renewal rate of expired leases is 92 per cent.
The trust is maintaining a distribution forecast of 6.85 Singapore cents made for FY2008-09 in its listing prospectus.
Jonathan Yap, CEO of the trustee-manager, said: ‘We remain focused on actively managing the portfolio’s income stability and enhancing returns through organic growth.’
The trust will continue to develop the land it owns and acquire new assets in a yield-accretive manner, Mr Yap said. ‘We aim to do so through an optimised capital structure.’
Gearing for the trust was 4 per cent at the end of Q4, leaving it with about $300 million of borrowing capacity for developments or purchases before gearing reaches 35 per cent.
JPMorgan rated A-iTrust ‘overweight’ in early April, with a target price of $1.54. The trust’s units closed two cents lower at $1.18 yesterday.
LMIR – OCBC
Mixed signals from maiden results
Shortfall in revenue. Lippo-Mapletree Indonesia Retail Trust (LMIR) posted S$29.3m in total revenue over 19 Nov 2007 to 31 Mar 2008, missing its IPO forecasts by 5.11%. Management indicated that the shortfall stemmed from four of LMIR’s retail malls in Jakarta; Bandung; and Greater Jakarta that had recently undergone asset enhancement works. The miss was apparently due to “reduced rentals” meant to attract traffic driving tenants. The REIT said the variance from its forecasts would be “mitigated in the coming months”. LMIR has not given many details on the portfolio’s performance, which makes it hard to judge how much blame was due to lower rental rates (with no immediate remedy) or higher vacancy levels (which has an easier fix).
But DPU exceeds forecasts. Tightly controlled operating expenses drove the S$27.6m in recorded net property income. The strong 94.4% NPI margin versus the 93.5% forecasted at listing helped LMIR to recover some of the shortfall in turnover but it was primarily one-time gains that reversed the ‘shortfall trend’. One time gains included realized gains on forex forward contracts which led distributable income to exceed forecasts by 3.3% at S$23.3m. Unitholders will enjoy DPU of 2.2 S cents for the period. We are estimating full-year DPU to come to 5.8 S cents, implying a strong 10.2% yield.
Sun Plaza to brighten 2Q. LMIR completed its maiden post-IPO acquisition on 31st March for IDR980bn. The Sun Plaza in Medan increased its total portfolio NLA by almost 20%. According to Knight Frank estimates, the property was bought at a 11.5% discount to its IDR 1,107bn value and at a 9.4% FY07 NPI yield. We estimate that the retail mall will contribute more than IDR25bn to 2Q revenue. As Sun Plaza is LMIR’s first geared acquisition, it will also begin to record interest costs on the S$125m debt. Nevertheless, we believe the acquisition is DPU yield accretive and will add a shine to FY08 earnings.
Treading carefully. We will continue to monitor the performance of LMIR’s existing portfolio as more data come in on portfolio performance. LMIR also said that it will “reassess the timing and sequence” of its targeted acquisition portfolio, as mentioned in our report last week. While LMIR’s acquisition pipeline remains impressive, the uncertainty shrouding equity and debt markets will most likely drive LMIR to adopt a less aggressive acquisition schedule than previously indicated. We maintain our BUY rating and fair value estimate of S$0.70.
CCT – BT
Market Street Car Park set to stay – at least for now
CCT defers decision on redeveloping site into office building
CapitaCommercial Trust (CCT) has decided to defer its decision on the redevelopment of Market Street Car Park (MSCP) into an office building that could cost up to $1.5 billion.
Asked if the huge supply of new office space after 2010 was a determining factor, Lynette Leong, CEO of CCT manager CapitaCommercial Trust Management Ltd (CCTML), said: ‘No, the main reasons are the significant size of the redevelopment, rising construction costs, present volatility in financial markets and the unknown development premium amount, which have caused us to defer the decision on the planned redevelopment, such that it will not be made any earlier than mid-2009.’
Ms Leong also added that CCTML is ‘carefully evaluating the financial viability of and the funding structure for the redevelopment’.
‘We are not concerned about the new office supply after 2010 given that statistics show that office demand for good-quality office space is still strong and that the lease pre-commitments for the new supply have also reached a high level. For example, about 52 per cent of the office space at Marina Bay Financial Centre has been pre-committed three years ahead of its completion,’ added Ms Leong.
Apart from obtaining the necessary approvals, including the approval of CCT’s unitholders, if required, Ms Leong said that the decision to redevelop the site will always be subject to the financial viability of the project, which includes the amount of development premium payable based on the payment of 100 per cent of the enhancement in land value (instead of the standard 70 per cent).
She said: ‘We do not have any indication of the amount of development premium payable right now. However, it is expected to be a major component of the total redevelopment cost of MSCP.’
When the project was first announced in January, CCT said that the total project cost, depending on the development premium, could range from $1 billion to $1.5 billion.
On rising construction costs, Ms Leong said that this has increased by 10-15 per cent since the beginning of the year and that CCTML had also sought quotations from the construction companies.
Ms Leong said it would continue to take the necessary steps to obtain the planning permission (PP) from the Urban Redevelopment Authority, and assist its retail tenants in relocation. It would also ‘continue operating the car park to serve our season and hourly car park users’, she added.
While the potential loss of 704 car parking lots at MSCP was a prickly issue with many of its current uses, CCTML said that the provision of car parking lots was not an issue in getting PP.
Cushman & Wakefield managing director Donald Han said the deferment was ‘excellent news’, not least because occupancy costs, which factor the cost of car parking, would have increased.
He also reckons that the deferment could be linked to MSCP historically being designed to serve the CBD until new lots are provided. However, new restrictions limiting the number of lots in new buildings will have an impact on the number of available lots.
Knight Frank director (research and consultancy) Nicholas Mak believes deferring the project could be a strategic move to see if construction costs and rates for development charges could fall in the future.
But he believes the project will not be deferred for too long. ‘Reit’s have to constantly look for a growth story or it won’t seem interesting to investors.’