Month: April 2007
CMT – BT
CapitaMall Trust to swell portfolio by 12.5%
And it posts Q1 distributable income of $46.9m
CAPITAMALL Trust (CMT) is taking on new properties, increasing the size of its portfolio by 12.5 per cent from $4.8 billion to $5.4 billion. The injection of new properties will come from CapitaRetail Singapore (CRS). The trust yesterday agreed to buy from various parties the remaining 72.8 per cent of CRS’s Class E bonds and attached preference shares for a total asset price of $710 million.
CMT already owns 27.2 per cent of the Class E bonds and has the right of first refusal to purchase the properties or units in CRS. CRS, which is a private retail property fund sponsored by CapitaLand Ltd, owns three suburban malls – Lot One Shoppers’ Mall, Bukit Panjang Plaza and Rivervale Mall.
CMT yesterday reported a distributable income of $46.9 million for Q1 2007. This is 6.8 per cent higher than its forecast. Distribution per unit (DPU) for the quarter came to three cents, 6.8 per cent higher than its forecast and can be expected to be paid on 29 May. Compared to Q1 2006, the DPU registered was 10.2 per cent higher at 12.17 cents (on an annualised basis).
CMT’s gross revenue for Q1 was $97.4 million, an increase of 27.1 per cent over the same period last year. Net property income came to $66.6 million, up 29.5 per cent compared to the same period last year. Higher gross revenue for Q1 was attributed to higher revenue registered at IMM where leases previously assumed to be vacant were renewed.
The chairman of the Reit manager CapitaMall Trust Management Ltd (CMTML), Hsuan Owyang, said that CMT’s 20 per cent stake in CapitaRetail China Trust also registered a net unrealised gain of over $150 million as at April 19, with CapitaRetail China Trust’s unit price appreciating 165 per cent since its listing in December 2006.
On the proposed acquisition of the three suburban malls here, Mr Hsuan said these had ‘substantial value creation opportunities’.
The current average property yield for the three malls is 4.9 per cent, and the properties are yield accretive when compared against CMT’s annualised distribution yield of 3.2 per cent (as at April 19).
Chief executive of CMTML Pua Sek Guan said that all the three malls have 100 per cent committed occupancy rates. He spoke of plans for asset enhancement and said: ‘The proposed construction of a retail extension block at Lot One, which will add approximately 10,600 sq ft of net retail space is expected to drive higher returns to unitholders.’
Lot One already has a net lettable area of 204,203 sq ft with major tenants including NTUC FairPrice, Shaw Cineplex and Food Junction. The asset enhancement is expected to cost $26.4 million and produce an ungeared return of investment of approximately 10 per cent.
Enhancements are under way at five of CMT’s 10 malls, which are expected to mean increased rents. At Tampines Mall, where the first phase of works is taking place, average rental under the Phase One asset enhancement initiative is expected to rise by 87 per cent from $10.53 psf to $19.74 psf, and add $900,000 to gross incremental revenue per annum.
CMT – BT
CapitaMall buys retail mall stakes for US$192m
SINGAPORE – CapitaMall Trust, Singapore’s largest property trust by market value, said on Friday that it would pay $290.3 million (US$192 million) to buy remaining stakes in three retail malls in Singapore.
A CapitaMall statement said that it will buy the balance of 72.8 per cent of Class E Bonds in CapitaRetail Singapore Ltd, a private property fund owned by parent CapitaLand Ltd. Together with the 27.2 per cent interest that CapitaMall had already bought since 2003, the trust will own 100 per cent of CapitaRetail, which in turn owns three shopping malls in Singapore worth $710 million.
CapitaMall said the purchase would boost its total assets to $5.4 billion, from $4.8 billion as at end December 2006, and was in line with its plans to increase its portfolio to $7.0 billion by 2009. The trust plans to finance the acquisition initially by debt but is considering various other options for long term financing. — REUTERS
A-REIT : DBS
FY07 results were in line
Comment on Results
A-REIT reported FY07 results that were in line with our expectations. Gross revenue and net income grew 25% and 15% y-o-y to S$283.0m and S$163.8m respectively. Distribution per unit (DPU) increased 9.2% y-o-y to 12.75 cents.
This improvement was due to the additional rental income from the acquired properties, higher occupancy of 96.6% as compared to 95.0% a year ago and organic growth of 2.7%.
Outlook
According to CBRE, there is an increase in capital value and rental rates by around 5% for all industrial space in 1QCY07. We remain positive on hi-tech space and Business and Science Park where demand is expected remain strong given the limited supply and increasing rental rates of office space in the Central Business District. Of note, A-REIT has 45% of its portfolio in the Hi-tech and Business and Science Park sectors. With both the stepped rental increase for the long-term leases and the positive rental reversions for the short-term leases, A-REIT is expected to continue to benefit from organic growth. Some 57% of under-rented leases are due for renewal in FY08.
Recommendation
A-REIT targets an asset size of S$5.0bn by 2010, with S$400.0m p.a. worth of acquisitions and development required. Hence, we have reduced our acquisition pipeline from S$500.0m p.a to S$400.0m p.a. from 2008 to 2010. Based on DCF Valuation rolled over to FY08), we have a target price of S$2.69. This derives a total return, including yield, of 17%. Upgrade our recommendation to Buy from Hold.
A-REIT : OCBC
Slowing down
DPU growth slowed on fewer acquisitions. Ascendas REIT (AREIT) reported its 4Q07 results with revenue rising 16% YoY to S$74.0m and with its distribution per unit (DPU) at 3.3 cents (+13% YoY). FY DPU was 12.75 cents (+9% YoY) and in line with our forecast. While FY DPU grew it was less than half of the 22% achieved in FY06. The growth deceleration reflects the slower rate of acquisition.
No guidance for acquisition in FY08. Historically most of AREIT’s earnings growth has been on the back of acquisitions of domestic assets. In FY07, AREIT only acquired assets worth S$488m, well below that achieved in FY06 of S$656m and S$1,000m in FY05. AREIT has not given any guidance with respect to acquisitions in FY08, but it has a long-term target of S$400m per year. However, we see the current slower pace of acquisition and hence DPU growth as probably here to stay. Nevertheless, AREIT does have about S$148m worth of acquisitions previously announced but yet to complete. These assets are presently being constructed and S&P agreement is not expected to complete until the buildings are physical completed towards the end of FY08. So these acquisitions are unlikely to boost earnings meaningfully for AREIT in FY08.
Market competition is intensifying. The industrial market space is definitely getting more competitive. There are three industrial REIT players in the market, i.e. AREIT, Mapletree Logistics Trust and Cambridge Industrial Trust. A fourth player, MacarthurCook Industrial REIT, is to be listed today and JTC REIT could be listed in 2008. Growth strategies of these REITs vary very little, as they all adopt the same acquisition-led growth strategy. Hence we do not anticipate competitive pressures to buy assets to get any easier.
Maintain HOLD. The key worry is AREIT’s high price-to-book ratio of about 1.7 times. This implies that the market continues to anticipate strong growth. With the industrial REIT space getting very crowded, we see a high risk of market being disappointed. Hence AREIT has to either moderate expectation or alternatively propose a new approach to growth. Nevertheless, we have allowed for AREIT’s asset size to increase from its current S$3.3b to S$4.0bn over the next 2 years. On the target asset size basis, our fair value remains at S$2.31. We maintain our HOLD rating.
A-REIT : CIMB
Overseas expansion by year-end?
FY03/07 results in line. Full-year DPU of 12.8cts is in line with our forecast but 1.5% below consensus estimate. Gross rental revenue was up 25% yoy to S$283m, driven by acquisitions completed during the year (S$340m) and higher overall occupancy rates (97% as at end-FY03/07, up from 95% a year ago).
On course to meet portfolio target. Areit has a portfolio target of S$5bn by 2010 (current S$3.3bn). Some S$148m worth of acquisitions sealed last year are pending completion (build-to-suit projects that are expected to be completed by 1H08). The potential acquisition pipeline includes S$400m-500m from parent Ascendas, S$600m-700m from JTC asset divestments and a development capacity of S$269m.
Strong demand for suburban office space, as more businesses move their noncore operations away from the CBD on account of surging prime office rents. As a result, rental renewal rates at Areits Business and Science Parks and Hi-Tech Industrial properties rose 13% and 19% respectively during the year. About 74% of Business and Science Parks leases and 65% of Hi-Tech Industrial leases are short term and imply the potential for robust rental reversions going forward.
Decision on regional expansion by year-end. Besides outright acquisitions of overseas assets, Areit could participate in parent Ascendas investments in the region by taking stakes in funds that Ascendas has set up in these countries.
FY10 DPU introduced at 14.6cts, based on a portfolio size of S$4.8bn by end-FY10 (average growth of S$500m a year) and an assumed average cap rate of 7% for potential acquisitions. In addition, our FY08-09 DPU forecasts have been raised by 3.2% and 1.6% respectively after tweaking margin assumptions for the different property segments.
DDM-based target price lifted to S$2.90 from S$2.82, on account of our revised DPU forecasts (cost of equity 6.2%). Our new target price implies an FY08 yield of 4.9% (spread of 200bp over the 10-year government bond), which we believe is reasonable. While the size of Areit makes acquisition-led growth incrementally difficult, above-average projected yields of 6% for the next three years make Areit a good defensive stock. We anticipate newsflow on Areits overseas expansion over the next 12 months to provide catalysts for the stock. Maintain Outperform.