CDL – GS
CDL REITS, gs remains a BUY with target price $2.13
– What’s changed . CDLHT net income for 1Q07 rose 40% yoy to S$11.3 mn helped by a 25% jump in RevPAR for its 4 Singapore hotels. Distribution per unit (DPU) for the latest quarter of 1.75 cents exceeded management’s projections by 28%. On an annualized basis, DPU was 7.1 cents, slightly lower than our FY07 forecast of 7.72 cents. We attribute the difference to seasonality, and highlight that all operating metrics since listing in July ’06 suggest good health 1) Revenue grew 60% to S$18.0m (from S$11.3m in 3Q06); 2) RevPAR grew 9.3% to S$153 (from S$140 in 3Q06); and, 3) Net Property Income grew 62% to S$16.7m (from S$10.3m in 3Q06).
– Implications. We believe 1Q07 results were positive and remain comfortable with our FY07 earnings and DPU forecasts. We continue to favor the Singapore hotel sector and are confident of demand absorbing the expected 10% growth in hotel rooms between end-2008 and end-2006. We note that for Singapore hotels, 1Q is traditionally the weakest quarter because of holidays such as the Lunar New Year in February. RevPAR for its Singapore hotels in 3Q06 and 4Q06 were 15% and 20% higher than in 1Q06 respectively. Given a stronger 2H07 and sustained visitor growth, we expect CDLHT to deliver 2-yr EPS CAGR of 8.5% per annum over FY07-09F.
– Valuation. We maintain our DCF based 12-m TP of S$2.13 for CDLHT, implying a share price upside potential of 16.4% and total returns of 20.6%. We like the dynamics for hotels in Singapore and look to CDLHT’s acquisition of the 440 room Copthorne Orchid as a catalyst. This hotel is subject to a right of first refusal granted by CDLHT’s sponsor Millennium & Copthorne.
CDL – BNP
CDL REITS, bnp remains a BUY with target price $2.28
– CDREIT, a BNPP Top Buy, will benefit from Singapore’s rising room rates over the next few years, driven by strong growth in tourist numbers but a limited supply of new hotel rooms. It plans to double its SGD846m portfolio over the next three years We maintain our BUY rating on this scarcely-covered stock, with a TP of SGD2.28.
– Robust 1QFY07 earnings growth . CDREIT posted a 37.8% increase in net property income of SGD16.7m in 1Q07. DPU was SGD0.0175 with an annualised yield of 3.8%. Overall occupancy rose from 78% in 1Q06 to 84% in 1Q07, while RevPAR rose 25.4% from SGD122 (ADR SGD157) to SGD153 (ADR SGD182) over the same period.
– Bold acquisition plans to drive DPU growth . CDREIT has a strong sponsor (Millennium and Copthorne) with a portfolio of 101 hotels globally. The management plans to double its existing portfolio (SGD846m) within the next three years, and intends to concentrate its acquisition efforts in the Asia Pacific and Middle East regions. We are confident that the management’s aggressive acquisition targets will underpin continual increases in DPU.
– Dynamic pricing underpinned by rising demand . Against the background of an improving tourism market, we believe stocks with leveraged plays in this segment could see further re-ratings in valuations, underpinned by higher RevPARs. The dynamics of revenue contribution in the hospitality segment are generally robust, considering that hotel operators respond very quickly to surging demand with higher room rates.
– Ascendant revision in hotel rates to drive DPU growth . CDREIT’s strong operating trends will continue to feed through to 2008. New supply of rooms are likely to be limited to only 2% in 2007 and 6% in 2008, with visitors growth estimated to grow by between 6-7% annually. We expect the ascendant revision in hotel rates to continue to drive DPU growth. Maintain BUY with a target price of SGD2.28.
CMT – GS
CAPITAMALL remains a BUY
– CMT said on Thursday that it has earlier received planning permission from the Urban Redevelopment Authority for Funan DigitaLife Mall to erect a 9 storey commercial building utilizing GFA of approximately 385,000 sf. CMT’s manager is, however, appealing to URA on an alternative waiver scheme so as to achieve a more efficient floor plate for the proposed development of an office block and to minimize disruptions to the retail tenants. We continue to have a positive bias on the stock, as CMT has shown a remarkable track record in generating incremental earnings growth from its portfolio of assets.
– Analysis . The addition of space at Funan has always been a possibility as CMT had during its IPO in 2002 said that this property, which was part of its initial portfolio, had unutilized GFA. We think given the existing shortage of CBD office space in Singapore, it is timely if CMT quickly brings on additional office space at Funan, which is located within the CBD. Assuming building efficiency of around 80%, we estimate the addition of space can generate some S$30 mn in revenue a year, almost 7% of our FY2007 forecasted revenue, on rentals of approximately S$8 psfpm. We do not see this addition of office space at Funan diluting the predominantly retail mall flavor of CMT. Also, we think this trust has enough debt capacity to fund the addition of new space even though the impending addition of 3 malls should raise the gearing for CMT from 37% to 41%.
– Implications. We await the details on the costs, timing and plans for the new office space at Funan and as such we put our earnings estimates and target price under review. We continue to like CMT’s top quality management plus its attractive organic and acquisition growth prospects. On current valuations, CMT trades at a 3.3% dividend yield. Risks include the inability to continue executing on growth via accretive acquisitions and an interest rate spike.
CMT – SGX
Funan DigitaLife Mall Receives Provisional Permission to Erect a Nine-Storey Commercial Building Utilising Additional Gross Floor Area of Approximately 385,000 Square Feet
Singapore, 3 May 2007 – We refer to the article “URA okays 1.3m sq ft office space” published in the Business Times on 28 April 2007. In CapitaMall Trust’s (CMT) Initial Public Offering (IPO) Circular dated 28 June 2002, it was stated that Funan DigitaLife Mall (previously known as Funan The IT Mall) had only utilised 3.861 of its allowable Gross Plot Ratio of 7.0 and has an unutilised Gross Floor Area (GFA) of about 385,000 square feet.
In order to maximise the unutilised GFA at Funan DigitaLife Mall, CapitaMall Trust Management Limited (CMTML), as manager of CMT, has submitted a planning application to the Urban Redevelopment Authority (URA) and has earlier received URA’s provisional permission to erect a nine storey commercial building and for additions and alterations to the existing Funan Digitalife Mall.
However, CMTML is appealing to URA on an alternative waiver scheme so as to achieve a more efficient floor plate for the proposed development of an office block and to minimise disruptions to the retail tenants. Further details will be provided in due course upon finalisation of details with the URA.