Month: January 2007
CCT – CIMB
Strong reversions expected
• FY06 within expectations. CCT’s DPU of 2cts for 4Q06 took full-year DPU to 7.3cts, vs. our forecast of 7.4cts and consensus expectations of 7.5cts. Gross rental revenue rose 89% yoy to S$56m in 4Q06, with growth mainly led by fullquarter contributions from Raffles City.
• Strong reversions to drive organic growth. All its properties remained almost fully occupied. About 24% of its office leases will be up for renewal this year and rates are likely to surprise on the upside. The latest lease at 6 Battery Road was signed at S$13 psf/month, with the asking rent reaching S$14 psf/month, vs. S$5-6 on average that its tenants are now paying. This was above expectations. We see CCT benefiting the most from strong office rent reversions in the next two years.
• Expanding in Malaysia and China. About 20% of CCT’s assets are likely to be in Malaysia and China by 2009. Quill Capita Trust (QUIL MK, RM1.33, NR), in which CCT has a 30% interest, will be the preferred vehicle for CCT’s expansion in Malaysia. The mode of investment in China is yet to be known but could be in the form of direct asset acquisitions or investments in a China-focused REIT, à la CMT’s (CT SP, S$3.24, NR) 20% stake in CRCT (CRCT SP, S$2.77, NR).
• We introduce our FY09 DPU estimate of 11.5cts, based on S$700m worth of acquisitions in 2009 taking CCT’s portfolio to S$5.9bn, a property yield of 3% for these acquisitions (40:60 debt-equity), and 34% and 23% of office leases up for renewal in 2008-09 respectively. We raise our FY07-08 DPU forecasts by 10-20% to reflect aggressive office rental reversions in the next two years.
• DDM target price accordingly raised to S$3.00 from S$2.55, still based on a cost of equity of 5%. Our FY07 DPU estimate of 9.5cts and target price of S$3.00 translate into a forward yield of 3.2%, in line with the CY06 yield that CCT has been trading at. Potential catalysts over the next 12 months could include asset enhancement plans for Raffles City, CCT’s move into China and possibly the trust’s maiden development project. Based on CCT’s latest assets of about S$3.8bn, we estimate CCT can undertake development projects worth S$380m. In light of the anticipated stronger DPU growth and favourable news flow, we upgrade our rating from Neutral to Outperform.
CMT – DBS
Continues to deliver
Consistent set of results, in line with expectations. CMT reported FY06 results in line with expectations, with DPU growing 14.3% y-o-y to 11.69 cents. We have previously highlighted that there would be kicker for 4Q06 DPU of 0.27 cents due to 10% retained earnings from 1Q06 for asset enhancement of IMM. As a result, CMT would distribute 4Q06 DPU of 3.35 cents. 4Q06 also saw revaluation of assets of S$239.6m and S$499m for the full year, raising NAV per unit to S$1.87 which further expands portfolio base and increase debt capacity.
Steady asset performance. Active leasing management for the CMT portfolio continues to pay off, with renewals and new leases achieving rental kicker of 8% for the CMT portfolio for FY06. Portfolio occupancy continues to be healthy at 99.5%. Asset enhancement initiatives continue to be underway for CMT, with AEI for IMM, Bugis Junction, Tampines Mall and Sembawang Shopping Centre expected to raise NPI by S$18.6m when completed by 2Q08. Moving forward, enhancement of JEC is also in the pipeline.
Outlook for physical market remains positive. The revaluation would expand the portfolio base on its balance sheet and provide further headroom in terms of debt capacity for acquisitions. Outlook remains positive, with double-digit retail rental growth expected by market watchers.
Maintain Buy, TP S$ 3.64. We continue to like CMT for its strong pipeline of acquisitions backed by strong sponsor Capitaland, consistent delivery of asset enhancements, alternate growth channel in China’s retail sector through CRCT and exposure to positive fundamentals in the Singapore hotel sector through Raffles City asset. We are revising our target price up to S$ 3.64 based on DCF valuation after raising NPI assumptions backed by enhancements. Maintain Buy.
MMP – OCBC
A laggard play
Flattish growth. Macquarie MEAG Prime REIT’s (MMP) 4Q06 came in within expectation. Top-line came in at S$22.6m, improving 1% QoQ, with NPI (Net Property Income) at S$17.2m (-1% QoQ). However, distributable income per unit (DPU) was better at 1.47 cents, improving 2% QoQ. The lower NPI was attributed to higher property expenses (mainly depreciation) as the result of the installation of escalators linking Wisma Atria basement to Orchard road. This is a non-tax item and is distributed back to unitholders, hence the higher DPU.
Organic growth to come from office. Presently, MMP’s retail space enjoys fairly high rentals and will see very little space up for renewal in 2007. So we do not anticipate this segment to be the growth driver. However, on the office segment we expect about 182,000 sq ft (about 70% of office space) of leases to come up for renewal over the next 2 years. More importantly, these expiring leases have a rental rates averaging at only about S$5 psf/mth, whilst present market rates are closer to S$8 psf/mth. So we can expect about a 60% rise in rates for these spaces. This higher rate in turn will translate to an increase in revenue of about S$3.0m p.a. over the next 2 years. In light of the good reversions, we have adjusted our FY07 and FY08 DPU forecasts from 5.90 cents and 6.02 cents to 6.12 cents and 6.37 cents respectively.
Where are the acquisitions? In so far as acquisition is concerned, MMP has been fairly disappointing. In the current results announcement again, there was no news of potential acquisitions. Relative to all its S-REITs peers, MMP stands out as one of the few REITs not to have bought anything since IPO. On a positive note, MMP has recently beefed up its investment team and is targeting acquisitions in China, Japan, Malaysia and Singapore. We remain hopeful of some positive developments soon.
Maintain Buy with higher revised fair value. Since our valuation upgrade in December, MMP has done exceedingly well, rising by about 17% over the last month. However, even at present trading range, its price to book of about 1.0 times remains very low relative to its peers’ P/B of 1.4-1.8 times. We thus remain positive on MMP and see it as one of the lowest-risk REITs with low expectation of growth. We see these traits as defensive and thus maintain our BUY rating and with a revised fair value of S$1.32 (from S$1.22) on the back of higher office valuations.
FrasersCT – DBS
Small is beautiful
1Q07 DPU slightly above expectations. FCT’s 1Q07 DPU of 1.54 cents is slightly above our estimates. Gross rental revenue of S$19.2m grew 8.1% y-o-y, mainly attributed to positive reversions from renewals and new leases, as well as higher carpark income and additional income from leasing of Atrium space, etc. Net property income grew 4.2%, mitigated by higher expenses. Occupancy for FCT’s portfolio continues to be healthy at 98.8%, slightly affected by Anchorpoint currently repositioning into a village-mall concept. Distributable income was S$9.47m, 4.3% above FCT’s own forecast.
Further expansion of pipeline. To recap, moving forward we expect FCT to focus on asset enhancement plans in the near term, followed by planned acquisitions. Asset enhancement is targeted to commence from Jan 2007 and span 20 months for each of the three properties in the initial portfolio. Acquisition pipeline in the near term remains status quo with Centrepoint property and Yishun extension to complete in FY08 and FY2010 respectively. In the longer term, Frasers Centrepoint (“FCL”) has recently acquired two properties in Bedok Town Centre for S$40.8m as well as an option agreement to acquire Yew Tee Point from NTUC Choice Homes, expected to complete in 2009. Therefore, small is beautiful for FCT which is slowly but steadily expanding its acquisition pipeline which we estimate to double to S$1.8bn by 2010.
Maintain hold with raised TP at S$1.53. We have rolled forward our DCF estimates to FY2011, maintaining a five-year investment horizon. Besides incorporating acquisition assumptions for Centrepoint and Yishun property to be completed by 2008 and 2010 respectively, we have also included potential acquisition of the Bedok property and Yew Tee Point in our estimates. Therefore we are raising our target price to S$1.53 based on DCF valuation but maintain our Hold recommendation for FCT.