UBS cuts DPU forecasts for retail Reits by 30%

Business Times - 17 Feb 2009
UBS cuts DPU forecasts for retail Reits by 30%
It sees retail sales here sliding 4-5%; rents falling due to space oversupply
By UMA SHANKARI

(SINGAPORE) Retail sales here could slide 4-5 per cent this year, says UBS Investment Research, which has also cut its distribution forecasts for Singapore's retail trusts by up to 30 per cent.

After several downgrades, UBS economists now expect Singapore's GDP to shrink 3 per cent and inflation to fall to 0-1.5 per cent this year, saying that this will hit retail spending and rents.

In the past, retail sales correlated with GDP growth, UBS says. In the 2001 recession, they weakened 2.2 per cent, in line with a GDP contraction of 2.3 per cent. And rents in the central area fell 19 and 14 per cent in the 1998 and 2001 recessions respectively.

'As a recession of minus-3 to minus-4 per cent is expected for 2009, we expect retail sales to fall around 4-5 per cent before recovering to 3 per cent a year in 2010-2012,' UBS says in a report issued on Friday last week.

Previously, when retail sales declined during recessions, the supply of new retail space was limited, providing support for rents, UBS says. But, as well as the current weak economic climate, there is an unprecedented supply of new retail space coming up, especially in the Orchard Road area.

UBS reckons overall retail space supply could rise 11 per cent in 2009-2011, with Orchard Road supply up by 37 per cent.

'As a result, we now expect retail signing rents to fall 8 per cent in 2009-2010 in the suburban areas, and around 23 per cent in 2009-2010 in the Orchard Road area,' it says.

So far, Singapore-listed real estate investment trusts (S-Reits) have not seen a substantial drop in retail sales at their malls, UBS notes.

But discretionary sales could deteriorate, it says. 'We expect the impact to be limited for the suburban portfolios but materially negative for central area malls, mainly due to high supply.' Based on the current trade mix, UBS reckons suburban malls will be less affected by weakening retail sales.

With this in mind, it has cut its distribution per unit (DPU) forecasts for Singapore retail Reits by up to 30 per cent this year and 40 per cent in 2012.

UBS has 'buy' calls on four retail S-Reits - CapitaMall Trust, Suntec Reit, Starhill Global Reit and Frasers Centrepoint Trust.

Suntec REIT: Target cut to S$0.73 - BUY (DB)

DJ MARKET TALK: DB Cuts Suntec REIT Target To S$0.73; Keeps Buy

0105 GMT [Dow Jones] STOCK CALL: Deutsche Bank cuts Suntec REIT target price to S$0.73 from S$1.00; maintains Buy rating. Broker says new target price reflects "dilution scenario" based on assumption REIT will issue new equity to help refinance debt maturing this year. But thinks refinancing risks already priced in; "we believe that dilution for an equity raising to refinance S$825 million of debt expiring this year is priced in, and a successful refinancing could lift this overhang." Adds weakening retail sales, declining office rents will affect REIT's portfolio, but this is also already reflected in low valuation with REIT offering 15.7% FY09 yield, deep 69% discount to book net asset value. Shares down 0.8% at S$0.605. (KIG)

(END) Dow Jones Newswires
February 16, 2009 20:05 ET (01:05 GMT)

Fraser Commercial Trust: FY08 Results

Previous day closing price: $0.205
Recommendation: SELL (downgraded from HOLD)
Target price: $0.14 (reduced from $0.21)

Full year results were disappointing, although not unexpected. Revenue was up 42.1%, net property income up 31.8%, but DPU fell 5.1%. Revenue increased on the back of full year contributions from acquisitions and the fall in DPU is mainly attributed to higher borrowing cost.

Portfolio size dropped 13%, mainly due to translation losses of the Australian properties and also downward valuation of AWPF wholesale fund, Keypoint building and Cosmo Plaza. NAV thus fell from $1.42 in FY07 to $0.97 in FY08.

FCOT has $620 million to refinance this year, $70 million of which comes due in May 2009 and the rest in Dec 2009. In Nov 2008, F&N demonstrated its show of support by extending a loan of $70 million to FCOT at an interest rate of 3.73%. With its sponsor support, short term financing is not a problem for FCOT. The real test is towards the end of the year where the refinancing quantum is much higher.

We do not think DPU is going to get any respite in the near term. We factor in lower contributions from Australia and also make an allowance for higher tenant vacancies. Another dilution to DPU is the issuance of management fees in units. Approximately 29 million units were issue in lieu of management fee for FY08 versus 8.3 million units in FY07. If share price continues to remain depressed, we project a further 45 million units will be payable for FY09 and DPU will thus be further diluted. We do not rule out an equity fund raising either as gearing is currently at a high of 57%.

Shares: 736.047 mil
Market Cap: S$147.21 mil
Trailing PER: N.A
Forward FY09 PER: 6.06
P/BV: 0.21
52-weeks Price Range: S$0.195 – S$0.87
52-weeks PER Range: 1.47-21.6
Major Shareholder: F&N (20.6%), Capital Group (9.86%)
Dividend Yield: FY07 - 32.8%, FY08 - 30.8%, FY09F - 21.8%

Source: PhillipCapital, 12 Feb 2009

MacarthurCook Industrial REIT 3QFY09 Results

MIREIT’s credit rating was downgraded by Moody’s to B1. The main reason for the downgrade is the impending refinancing need of MIREIT for its debt of $220.8 million due in April 2009. This is also our main concern regarding MIREIT. Although we understand the REIT manager has been in talks with various parties, nothing has been announced thus far.

Financial results are in line with expectations. Revenue for 3QFY09 is up 54.0%, net property income increases 49.1% and DPU increases 22.4%. MIREIT has maintained a quarterly DPU of 2.35 cents for FY09. Quarterly payout ratio was 92.7%, 87.7% and 98.5%. We believe the REIT manager has anticipated higher operating cost and therefore has maintained a fixed quantum of quarterly DPU so that there is buffer to withstand any volatility. With the retained cash on hand, MIREIT should be able to maintain at least the same amount of DPU for 4QFY09.

Shares: 261.716m
Market Cap: S$69.35m
Trailing PE: 1.65
Forward PE: 3.73
P/BV: 0.27
52-week Price Range: $0.225 - $1.20
52-week PE Range: 0.77 – 7.25
Major Shareholder: MCK Ltd – 15.21%; UBS AG – 5.75%
Dividend yield: 2008 - 28.3%; 2009F - 36.3%; 2010F - 32.4%

Source: Phillip Securities, 12 Feb 2009

Ascott Residence Trust: Initiating Coverage by Kim Eng

Previous Day Closing price: $0.455
Recommendation: BUY
Target price: $0.77

We initiate coverage on ART with a BUY recommendation at a target price of $0.77. Its projected yield of 16.1% and 13.7%, and 0.31x P/NAV represent a chance to buy the premium Ascott brand at a bargain. ART owns and operates 38 well-located serviced residences in gateway cities of both emerging and stable markets.

Sponsor, The Ascott Group, is the serviced residence arm of Capitaland Ltd. It owns and operates 18,000 serviced residences outside of the US, with another 6000 units under development in Asia Pacific. These represent a strong pipeline of units that could be included in ART’s portfolio in the future.

ART’s gearing of 38.3% is well within the regulatory gearing limit. The bulk of its S$111m in bank loans maturing in 2009 is due only in Dec-09. We expect management to be able to refinance or secure fresh loans. ART faces no major refinancing need until 2011. Its low borrowing costs, averaging 3.5%, was achieved by good interest rate management.

Our target price is derived based on the dividend discount model (DDM) at a 9.7% cost of equity and 1% terminal growth rate. The key risk is a greater-than-expected decline in REVPAU in major operating markets. We are estimating a gentler decline in its FY09F DPU due to rental support from the long-stay segment. ART’s discount compared to its closest peer CDLHT is unjustified. We initiate coverage on ART with a BUY.

Source: Kim Eng, 11 Feb 2009

CapitaLand rises, CMT falls after rights issues (BT)

CAPITALAND and its listed retail trust CapitaMall Trust (CMT) announced massive rights issues on Monday.

But while CapitaLand's $1.84 billion one-for-two rights issue has been well-received by analysts and the market, CMT's $1.23 billion nine-for-10 rights offer has not fared as well.

Analysts rushed to issue 'buy' calls on CapitaLand after the developer said it was raising money to boost its war chest to $6 billion as it searches for acquisitions. CMT, on the other hand, was criticised for an 'unwarranted dilution'.

The market seemed to agree yesterday. CapitaLand shares gained 11.4 per cent or 27 cents, to close at $2.63. But CMT lost 6.2 per cent or nine cents to close at a one-year low of $1.36.

Merrill Lynch upgraded CapitaLand to 'buy' from 'underperform', while OCBC Investment Research upgraded it to 'buy' from 'hold'. CLSA, Kim Eng, UBS Investment Research and UOB-Kay Hian all reiterated 'buy' calls too.

'We believe the cash raised provides CapitaLand with the financial flexibility to ride through challenging property markets, enhance market positioning and, more significantly, the ability to take advantage of opportunistic acquisitions,' Merrill said.

A few firms were less bullish. Citigroup, CIMB and Nomura maintained their respective 'sell', 'underperform' and 'reduce' recommendations. Citigroup said the rights issue will be a drag on CapitaLand's return on equity.

Goldman Sachs, which has a 'neutral' call on the company, said the rights issue is sufficient to address investor concerns over book value erosion from land bank provisions and associated asset value declines (from listed trusts), which Goldman estimates could be around $1.9 billion spread over the next two or three years.

'With the sizable rights offering, we see no further need for capital raising in the next two years into the downturn, as the company has said it plans to revisit project commitments,' said Goldman analysts Paul Lian and Natasha Parchani.

A successful rights issue would refocus attention on CapitaLand's capacity to benefit from the current market environment as it is more likely than its peers to generate net asset value growth in the next two or three years, the analysts said.

Reviews for CMT's $1.23 billion rights issue were more mixed. The trust intends to use the bulk of the proceeds to pay off $956.2 million of debt due this year.

CLSA downgraded CMT from 'outperform' to 'underperform'. In contrast, OCBC upgraded the stock from 'hold' to 'buy'.

'While the proceeds will help the company repay debt and lower gearing to 29.1 per cent (from 43 per cent currently), we see the rights issue to be rather value dilutive,' said CLSA analyst Yew Kiang Wong. The cost of retired debt, at 3.4 per cent, is much lower than the cost of equity, CLSA noted.

But OCBC analyst Foo Sze Ming said the rights issue is not driven by refinancing issues and is instead for the 'long-term sustainable growth of CMT's portfolio'.

'By paring its gearing level now, CMT will have better financial flexibility to take on opportunities for asset enhancement initiatives and acquisitions in future,' Mr Foo said.

CapitalMall Trust: Rights Issue

The manager of CMT proposed to undertake an underwritten and renounceable Rights Issue to raise gross proceeds of approximately S$1.23 billion. Approximately 1.50 billion Units will be offered at the rights ratio of 9 Rights Units for every 10 Existing Units held as at the Rights Issue Books Closure Date, at the Rights Issue Price of S$0.82 per Rights Unit.

The Rights Issue will allow CMT to strengthen its balance sheet and reduce the CMT Group’s Aggregate Leverage from 43.2% as at 31 December 2008 to 29.1% assuming the Borrowings are repaid immediately after the Rights Issue.

The Rights Issue would provide Unitholders with the opportunity to subscribe for their pro rata entitlement to the Rights Units at the Rights Issue Price which is at a discount of approximately 43.4% to the Closing Price of S$1.45 per Unit, a discount of approximately 49.1% to the 30-day VWAP (volume weighted average price) of S$1.61 per Unit and a discount of approximately 28.7% to the TERP (theoritical ex-rights price) of S$1.15 per Unit.

Time Table:

Last day of “cum-rights” trading for the Rights Issue	3 March 2009
First day of “ex-rights” trading for the Rights Issue	4 March 2009
Date on which the Transfer Books and Register of Unitholders of CMT will be closed to determine the provisional allotments of Eligible Unitholders under the Rights Issue	6 March 2009 at 5.00 pm
Commencement of “nil-paid” rights trading	11 March 2009
Last day of “nil-paid” rights trading	19 March 2009
Last day for acceptance and payment of Excess Rights Units	25 March 2009
Expected date of issue of Rights Units	2 April 2009
Expected date of commencement of trading of Rights Units on the SGX-ST	3 April 2009

A-REIT: Results of Preferential Offering

The manager of A-REIT announced that valid acceptances of 79,929,637 New Units and applications for 66,297,342 excess New Units representing an aggregate of 146,226,979 New Units, or approximately 156.0% of the total number of 93,710,0213 New Units available under the Preferential Offering, were received as at the close of the Preferential Offering at 5.00 p.m. on 5 February 2009.

The provisional allotment of a total of 13,780,384 New Units which were not validly accepted by Entitled Unitholders were allotted to satisfy applications for excess New Units.

The New Units will be issued on 12 February 2009, and the New Units will be listed and quoted on the Official List of the SGX-ST with effect from 9.00 a.m. on 13 February 2009.

Source: A-REIT, 9 Feb 2009

CDL - Introduction

CDL Hospitality Trusts is a stapled group comprising CDL Hospitality Real Estate Investment Trust (“H-REIT”), a real estate investment trust, and CDL Hospitality Business Trust (“HBT”), a business trust. CDL Hospitality Trusts was listed on the Singapore Exchange Securities Trading Limited (“SGX”) on 19 July 2006.

As of 31 December 2008, H-REIT’s portfolio with a total of 2,806 hotel rooms, comprises Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King’s Hotel and Novotel Clarke Quay (collectively, the “Singapore Hotels”), all of which are located in Singapore and marketed as “superior” hotels, the Rendezvous Hotel Auckland, a deluxe hotel located in New Zealand’s gateway city of Auckland, as well as the Orchard Hotel Shopping Arcade, the shopping arcade adjoining Orchard Hotel.

HBT is a business trust which is presently dormant. Accordingly, the financial information of HBT has not been presented. HBT will, however, become active if H-REIT is unable to appoint a master lessee for any of the hotels in its portfolio at the expiry of the relevant master lease agreement or for a newly acquired hotel. In such circumstances, HBT will be appointed by H-REIT as a master lessee for that hotel, and HBT will in turn appoint a professional hotel manager to manage the day-to-day operations and marketing of the hotel. HBT exists primarily as “a master lessee of last resort”. HBT may also become active if it undertakes certain hospitality and hospitality-related development projects, acquisition and investments which may not be suitable for H-REIT.

H-REIT’s distribution policy is to distribute at least 90.0% of its taxable income, comprising substantially its income from the letting of the properties and related property services income after deduction of expenses and allowances, and of its tax exempt income (if any), with the actual level of distribution to be determined at the H-REIT Manager’s discretion. H-REIT will be distributing 90% of its taxable and 100% of its tax exempt income available for distribution to holders of the Stapled Securities for the financial period from 1 July 2008 to 31 December 2008. Distributions, when paid, will be in Singapore Dollars. H-REIT will make distributions to holders of the Stapled Securities on a semi-annual basis, with the amount calculated as at 30 June and 31 December each year for the six-month period ending on each of the said dates (the “Scheduled Distribution”). The first Scheduled Distribution was paid on 29 August 2008. The second Scheduled Distribution will be paid on 27 February 2009.

Source: UNAUDITED FINANCIAL STATEMENTS ANNOUNCEMENT OF CDL HOSPITALITY TRUSTS AND H-REIT AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2008

K-REIT: FY2008 Results Summary

FY2008 distributable income +166.7% yoy
Net property income: +40.3% yoy
Portfolio with 99% committed occupancy
Average portfolio gross rental rate: +26.4% yoy
No refinancing requirements until 2011
Distribution Yield: 12.7 (based on closing price of $0.70 as at 31 Dec 2008)

Ascendas REIT: Short-term pain for long-term gain

Previous day closing price: $1.26
Recommendation: OUTPERFORM (maintained)
Target price: $1.67 (reduced from $2.17)
Market Cap: $1,678m

3QFY09 results were in line with Street and our expectations. DPU of 4.05cts for the quarter grew 13.9% yoy, to form 25.7% of our forecast for FY09. Gross revenue of S$102.3m was up 27.6% yoy, boosted by continued strong rental reversions for Business and Science Parks (+60.6%) and Hi-Tech (+85.8%). YTD DPU of 12.0cts forms 75.9% of our full-year estimate.

Separately, management announced an equity fund-raising via private placements and preferential offerings of up to 354m new units at an issue price of S$1.13-1.16 to raise gross proceeds of S$400m. Sponsor Ascendas will maintain its aggregate unitholding at 27.1%. The private placements conducted via accelerated book-building will be completed by market close on 16 Jan 09. Gross proceeds will be used to repay part of AREIT’s debt and fund current and/or future development projects.

Although the equity raising is within expectations, the timing comes as a surprise as refinancing with bank debt is not an immediate problem. Despite the short-term pain of DPU dilution and share overhang, AREIT will be in a better position to sit out an extended recession with improved asset leverage of 33.7%, down from 42.2%. Fears of breaching asset leverage and the pulling off of short-term revolving lines will be assuaged with its lower gearing.

After the placement, FY09 DPU would drop 0.3% to 15.71cts from 15.76cts. We expect the full impact of dilution in FY10-11, when DPU would decline by 16% and 15% respectively. Yields in FY10 based on our assumed price of equity of S$1.16 would be 11%, vs. yields of 10.2% at the current share price. Following our DPU adjustments, our DDM-derived target price (discount 8.7%) has been lowered to S$1.82. Further, to account for a likely share overhang in the short term, we lower our target price to S$1.67, which is its estimated NAV after dilution. Maintain Outperform given its relative upside to the STI.

Source: CIMB, 16 Jan 2009