CPN Retail Growth Leasehold
New asset, higher IRR, higher profit, higher TP BUY
CPN Retail Growth Leasehold
New asset, higher IRR, higher profit, higher TP
- Raise 2014-2015F net investment income 18-29% on new acquisition
- New asset will add to DPU growth over the long horizon
- Raise end year TP to Bt21/unit (from Bt20/unit); attractive new IRR at 9.4%; maintain BUY
Revise 2014-2015F forecasts on new asset. On April 23, CPNRF successfully acquired CentralPlaza Chiangmai Airport for Bt10.7bn, the average appraised value. To reflect the new asset, we have raised our net investment income for CPNRF by 18% to Bt2.7bn in 2014F and 29% to Bt3.0bn in 2015F. Although this adds to loan repayments in the immediate future, leading to a flat DPU in 2014F and fall of 5% in 2015F from previous forecasts, we see the transaction as growth accretive in the LT. Helping to make up for the expiration of the leaseholds for Pinklao Plaza and Office Tower A and B (2024) and Rama II (2025), the new asset will grow the overall portfolio by raising DPU CAGR for 2017-2030F to 1.5% from our previous forecast of -0.8%.
2014 outlook still strong. Although the political swamp dampened the mood for shopping and made it harder to raise rents, we still expect a strong 20% increase in rental and services income in 2014F to Bt3.1bn. Supporting this will be: 1) revenue from CentralPlaza Chiangmai Airport and 2) increases in rent and renewals, albeit at a slower rate, since based on our estimates, 29% of the contracts in CPNRF’s portfolio expire in 2014F. Assuming an average occupancy rate of 98%, we estimate average rental rate at Bt1,294/sqm/mth, up 4% from Bt1,248/sqm/mth in 2013 (excluding CentralPlaza Chiangmai Airport), giving net investment income of Bt2.7bn, up 23% YoY. Assuming a payout ratio of 96% on adjusted net income, DPU will be flat at Bt1.28/unit for 2014 but with no dilution, thus implying a yield of 8.2%.
1Q14 up 8% YoY and 5% QoQ, with net investment income of Bt564mn (EPU Bt0.34). This accounted for 22% of our 2014 forecast and we leave it unchanged since CentralPlaza Chiangmai Airport will add to revenue for the remainder of the year. Driving YoY growth was a 7% increase in rent and service income supported by renovations and a change in tenant mix that facilitated an increase in rental rates at Rama II. Cost of rental and service came down 10% as a portion of the usual repair and maintenance was put off to later this year. Including unrealized gain/loss from investment, net increase in net assets surged 446% YoY but slid 17% QoQ. The YoY jump came from the decrease in asset fair value in 1Q13 due to renovation and change in tenancy mix in Central Rama II. CPNRF also announced an interim DPU of Bt0.36 (on Dec 16-Mar 31 operations) implying an annualized yield of 8.0%. In 2Q14 we expect net investment income to be stronger YoY and QoQ, boosted by revenues from CentralPlaza Chiangmai Airport.
Raise TP to Bt21/unit (from Bt20); reiterate BUY. Factoring in the impact of the CentralPlaza Chiangmai Airport acquisition, we have raised our end-year DCF-based (unchanged CAPM of 7.75%) target price to Bt21/unit (from Bt20/unit). This provides an attractive ETR of 42%. Our new IRR is estimated at 9.4% (from 9.1%), making CPNRF the most attractive property fund under our coverage. Thus, we reiterate BUY.
Key risks: 1) Macro-economic slowdown; 2) greater cannibalism than anticipated from the opening of the Central Chiangmai Festival
