CDL Hospitality Trusts - above expectations

CDL Hospitality Trusts reported income available for distribution of S$17.4mn for 2Q09 (-31.5% yoy), bringing the income available for distribution in 1H09 to S$35.5m (-26.8% yoy) or 4.25 cents per unit. The income to be distributed per unit for 1H09 stood at 3.86 cents implying a payout ratio of 90%. The results are above our expectations with the 1H09 DPU respresenting 60% of our full year forecast.

The overall portfolio occupancy levels for Singapore Hotels for 2Q09 dropped 11.6% yoy to 75.5%,while the RevPAR declined 39.8% yoy to S$134 due to softer market demand situation and the global outbreak of Influenza(H1N1) in 2Q09 taking a toll on the tourist arrivals to Singapore.

Average daily rate for Singapore Hotels for 2Q09 was at S$178, down 30.2% due to intense price competition among hotel operators. Management has noted an improvement in demand in the months of June and July with both Corporate and leisure travel showing signs of an uptrend compared to the first five months of 2009.

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Cambridge Industrial Trust - lower our rating from Buy to Hold

Cambridge Industrial Trust reported results for 2Q09. CIT recorded gross revenue of $18.5 million (+2.8% yoy, flat qoq), net property income of $16.0 million (+0.9% yoy, flat qoq) and distributable income of $10.7 million (-13.8% yoy, +0.04% qoq). DPU for 2Q09 is 1.345 cents.
Gross revenue is stable with slight growth over the quarters. Occupancy rate improves slightly from 99.2% in 1Q09 to 99.5% in 2Q09. Distributable income has however decreased since 1Q08 to 1Q09 before improving slightly in 2Q09. The main reason for the decrease is the progressively higher interest cost CIT paid on its loans. CIT has maintained a gross margin of approximately 0.9x. Distributable income margin dropped from 0.7 in 1Q08 to the 0.6x level. We expect it to maintain at this level as interest payment should not varies much for the remaining term of loan.

Property portfolio was revalued downwards by 9%. Portfolio value fell from $967.7 million to $880.3 million. Correspondingly, gearing rises from 39.8% to 43.8%. CIT single loan maturity of $390 million is due in 2012. A point of concern is that further portfolio valuation drop may starts to breach bank covenants. CIT needs to maintain a LTV ratio below 0.55 and interest cover above 2.2x. Currently CIT has a LTV of 0.46 and interest cover of 3.2x. We estimate portfolio value will have to fall a further 17% before the LTV covenant is breached.

Our revenue forecasts have assumed a portfolio vacancy of 3%. Portfolio performance in the last two quarters was lower than our assumptions. We thus revise our vacancy assumption to 1%, still slightly conservative compared to CIT actual occupancy rate. We have also revised down the management fee following the downward revaluation of the portfolio. We raise our DPU forecast from 4.73 cents to 4.93 cents. Fair value is raised marginally from $0.44 to $0.45. In view of the recent run-up in price, we lower our rating from Buy to Hold.

CapitaMall Trust - 2Q09: Trend reversal in the direction of credit spread

CMT’s management’s commented that credit spread for bank loans with maturity of five years has receded by 100bp, which indicates a recovery towards a normalised credit market. BUY CMT, the behemoth in retail.

CapitaMall Trust (CMT) reported distributable income of S$69.6m (+20.7% yoy) and DPU of 2.13 cents (-39.5% yoy) for 2Q09, in line with our expectations.

Sustaining full occupancy. Portfolio occupancy was 99.7% in 2Q09, a slight improvement from 99.5% in 1Q09. A total of 322 renewals and new leases involving net lettable area (NLA) of 392,961sf were signed in 1H09. Contracted rental rates were 1.5% higher than preceding rental levels, sustaining a slight positive rental reversion. Gross revenue locked-in for 2009 exceeds 98% of full-year 2008 gross revenue, based on existing committed leases as at Jun 09.

Valuation of investment properties. CMT has recognised S$276.2m or 3.9% decrease in valuation of its investment properties. Its assets in Singapore are currently valued at S$6.9b. Capitalisation rate has increased marginally by 5-10bp to 5.50-6.00%. NAV/share was thus reduced from S$1.65 to S$1.56.

Credit crunch has eased. CMT does not have any debt refinancing for the rest of 2009. It has borrowings of S$440m due in 2010, with the bulk of S$315m due in Apr 10. Current gearing of 33.4% will be further reduced to 30.3% when S$335m fixed rate term loan is repaid with proceeds from the rights issue in Aug 09. Feedbacks from bankers indicate that a credit spread has dropped 100bp for bank loans with maturity of five years. Management intends to stretch out its debt maturity profile to 7-10 years to improve capital management. Moody's Investors Service has reaffirmed a corporate rating of A2 for CMT, the highest among S-REITs.

Work on JEC to commence by end-09. Management targets to commence asset enhancement initiative (AEI) for Jurong Entertainment Centre (JEC) by end-09. The mall has been closed since Nov 08. CMT was granted an increase in plot ratio for JEC from 1.85 to 3.00, more than doubling net lettable area (NLA) to 209,700sf. The reconstructed mall will have an Olympic-sized ice skating ring. CMT has secured pre-committment from anchor tenants for 50% of NLA (cinema, food court and supermarket). Construction cost is estimated at S$150m and the AEI is scheduled for completion in 2H11.

We have kept our earnings/forecasts relatively unchanged as the results were in line with our expectations. Maintain BUY with a target price of S$1.70, based on a Dividend Discount Model (required rate of return: 7.2%, growth: 3.0%).