Ascott Residence Trust (BUY; Target Price: S$1.34)
Revenues and gross profits grew by 57 per cent and 89 per cent to S$73.0 million and S$40.0 million respectively, largely fuelled by revenues from 28 serviced residences acquired in
October 2010 which offset the loss of income arising from divestments. NPI (net property income) margins improved to 55 per cent mainly due to the inclusion higher-margin master leases and an improvement in RevPAU portfolio wide. Portfolio performance has remained fairly consistent and strong since the beginning of 2011 with Singapore and London continuing to enjoy the after-effect of the group’s refurbishment works supported by strong underlying demand for rooms. Both markets saw RevPAU hikes in excess of 11 per cent and other markets remained relatively stable. Its Japan’s operations also came off its low with 23 per cent QoQ improvement in RevPAU. Looking ahead, we understand demand for rooms will continue to remain strong, but performance will moderate slightly in 4Q on a sequential basis as Europe moves into a seasonally weaker quarter (where guests profile mix is largely lower-yielding leisure guests). We believe a divestment of Somerset Grand Cairnhill Singapore is likely if it is to be redeveloped. This transaction will unlock value for ART, empower the REIT with firepower to make opportunistic acquisitions. – DBS Vickers
CapitaLand Limited (BUY; Target Price: S$2.91)
CapitaLand (CAPL) announced 3Q11 PATMI (net profit) of S$80.2 million, down 82.6 per cent YoY mostly due to recognition of DPS (dividend per share) units in restated 3Q10 earnings under INT FRS 115. 3Q11 earnings came in mostly within our expectations and 9M11 PATMI now forms 72.4 per cent of our FY11 forecast. Topline of S$608.6 million also came in line within 9M11 numbers constituting 75.3 per cent of our annual forecast. We believe the market’s focus ahead would be on the launch performances at the Bedok and Bishan projects in 4Q11-1Q12. Our fair value estimate is lowered to S$2.91 from S$3.46 to reflect latest valuations for its listed holdings and weaker forecasts for the office sector. In addition, we also apply a higher 20 per cent discount (versus 15 per cent previously) to RNAV (revalued net asset value), in-line with our valuations for other major developers, to reflect heightened macro-risks since our last update. – OCBC Investment Research
First REIT (BUY; Target Price: S$0.84)
First REIT (FREIT) reported its 3Q11 results which were within our expectations (excluding any one-off distribution). Gross revenue surged 79.2 per cent YoY to S$13.7 million while distributable amount to unitholders jumped 125.7 per cent YoY to S$12.1 million. The latter was boosted by a one-off distribution of S$2.2 million arising from a gain from a recent divestment. For 9M11, gross revenue increased 77.2 per cent to S$40.1 million and formed 74.3 per cent of our full-year projection; DPU (dividend per unit) of 4.74 S-cents (excluding the special non-recurring distribution of 0.34 S-cents per share) constituted 75.0 per cent of our FY11 forecasts. Moving forward, FREIT has a strong pipeline of acquisition targets from its sponsor Lippo Karawaci, and we believe that a deal in 2012 seems likely. In our view, any acquisition in the near term would be funded by debt given its low gearing ratio and ample debt headroom. We expect FREIT’s favourable master lease terms to provide resilience and stability to its income stream. Our RNAV (revalued net asset value)-derived fair value estimate is unchanged at S$0.84, but as this represents a total return of 14.0 per cent, we upgrade the stock to BUY. – OCBC Investment Research
First Ship Lease Trust (HOLD; Target Price: S$0.34)
Spot market product tanker performance disappoints but cash flow shores up by new TORM leases. As a result of full-quarter lease revenue from the two newly acquired vessels leased to TORM, revenue was up 22 per cent to US$28.6 million. On a QoQ basis though, revenue was flat as the product tankers on spot market performed weaker. Cash earnings were boosted 16 per cent YoY and 11 per cent QoQ to US$15.6 million due to the accretive TORM deal and lower interest expenses following the expiry of covenant waiver period in 2Q11. After loan repayments of US$7.2 million, net income available for distribution was up 38 per cent YoY to US$8.4 million, but management decided to maintain DPU (dividend per unit) of 0.95US-cents for the quarter. With one tranche of close to US$240 million maturing in April 2012, and another tranche of US$243 million maturing in March 2014, management has decided to
refinance the entire outstanding amount with a partially amortising 6-year loan. Firm commitments have been secured from a group of 6 lenders for 90 per cent of the amount and management is hopeful of securing the rest by the end of FY11. We estimate spreads for the new loans will be significantly higher than existing 125-145 basis points, pushing up interest costs. And with loan amortisation payments to be made every quarter, DPU growth may be limited. Pending finalization of and details of the refinancing exercise and a long-term lease solution to end the earnings volatility from the 2 product tankers trading on the spot market, we retain our HOLD call on the stock. Our target price is revised down to S$0.34 (14 per cent target yield) as we account for the higher risk environment. Upside may be capped by recent round of equity placement at S$0.35. – DBS Vickers
Frasers Centrepoint Trust (BUY; Target Price: S$1.68)
Frasers Centrepoint Trust (FCT) announced 4QFY11 DPU (dividend per unit) of 2.35 S-cents, representing an 8.8 per cent YoY and 20.5 per cent QoQ increase. This is the highest-ever quarterly DPU paid out, and surpassed both our and consensus forecasts. The solid performance, we note, was achieved on the back of strong performance upswing from Causeway Point (CWP), following the re-opening of refurbished sections. Going forward, we believe FCT will continue to post significant growth in its rental income as the full contribution of CWP and newly-acquired Bedok Point has yet to be realized. We raise our FY12 forecasts by 3.3-8.3 per cent to factor in the latest results and lower cost of debt. We also introduce our FY13 estimates and roll over our RNAV (revalued net asset value)-based valuation to FY12. Consequently, our fair value is now raised from S$1.57 to S$1.68. We turn positive on FCT as its suburban malls are likely to remain relatively resilient even in times of market uncertainty. We also like its strong execution and steady pipeline of assets from its sponsor. – OCBC Investment Research
Heeton Holdings (Not Rated)
The stock trades at a sharp 60 per cent discount to book, reflecting the relatively high net gearing of the company at 1.6x, the ageing investment assets and the high breakeven cost for its recently acquired landbank, which included Macpherson Green, Camay Court and Hong Leong Garden. Nearly half of Heeton’s earnings are recurring, coming from retail units at Sun Plaza, located next to the Sembawang MRT Station, Tampines Mart and The Woodgrove. All were developed by Heeton. Two valuable projects located in the prime district of Orchard Road are the company’s crown jewels. The sale of the remaining units of The Lumos and iLiv @ Grange could bring in an attributable profit of S$70 million, assuming an average selling price of S$2,800 per square foot. – Kim Eng Research
