Month: April 2010
CRCT – BT
CRCT maintains Q1 DPU at 2.14 cents
CAPITARETAIL China Trust (CRCT) has maintained its distribution per unit (DPU) for the first quarter ended March 31 at the year-ago level of 2.14 cents.
This translates to an annualised DPU of 8.68 cents or a yield of 7 per cent based on the trust’s closing price of $1.24 on April 23.
CRCT is managed by CapitaRetail China Trust Management Limited (CRCTML), which is an indirect wholly owned subsidiary of CapitaMalls Asia.
Income available for distribution was marginally up at $13.34 million. Due to a 6.2 per cent depreciation of the renminbi against the Singapore dollar in 1Q10 from 1Q09, gross revenue was 2.9 per cent lower at $29.5 million, while net property income (NPI) was slightly higher by 1.2 per cent at $19.34 million compared to $19.17 million.
Earnings per unit were 1.86 cents compared to 1.78 cents previously.
Wee Hui Kan, chief executive officer of CRCTML, said: ‘Our strategy of refining mall-positioning and tenancy mix to meet changing consumer demands continues to show results. Our committed occupancy rates stayed high at about 95.2 per cent.’
CRCT, which is the first China shopping mall real estate investment trust (Reit) in Singapore, has a portfolio of eight retail mall properties in five cities in China. As at Dec 31, 2009, CRCT’s total assets equalled $1.2 billion.
Separately, CRCTML also announced yesterday the appointment of Tan Tee Hieong as deputy chief executive officer of the company with immediate effect. Mr Tan, who joined the company in 2007, will continue to hold his current position as head of finance. Prior to joining CRCTML, Mr Tan was with Ikea for over nine years, where he held positions as treasurer and finance manager for the Asia-Pacific region.
MLT – CIMB
Nearing acquisition catalysts
• Results in line; upgrade to Neutral from Underperform. 1Q10 DPU of 1.5cts met Street and our expectations, forming 27% of our estimate. Distributable profit grew 8% yoy on tight cost control and lower borrowing costs. We raise our acquisition assumptions in view of management’s historical strong pursuit of growth via acquisitions, as well as higher new net property income margin and lower interest expense assumptions. Our DPU estimates increase by 9-12% for FY10-12. Our DDM-based target price (discount rate 8.6%) rises accordingly to S$0.86 (from S$0.74). MLT offers forward dividend yields of 7%. We upgrade it to Neutral in view of an improving outlook for industrialists. Re-rating stock catalysts could include announcements of acquisitions and development work in the near term, we believe.
• Second quarter of improving net property income (NPI). We were impressed with MLT’s tight cost control of property-related expenses which drifted down 4% qoq and 21% yoy. As a result, NPI of S$45.8m represented the second sequential quarter of improvement (+2% qoq). Portfolio occupancy was stable at 98%. On a quarter comparison basis, both distributable profit and DPU had declined due to a one-off contribution from the extension of leases at 201 Keppel Road in 4Q09.
• Expect acquisitions and BTS in near term. Management is closely looking at the acquisition of assets developed by its sponsor, Mapletree Investments. These acquisitions could take place in China, Vietnam or Malaysia. MLT’s portfolio cap rates are 8-9% in these countries and we expect properties to be acquired at such levels. Separately, MLT is exploring build-to-suit (BTS) properties with end-users. We believe announcements for acquisitions and BTS projects could come by 1H10 as the recent compression in its dividend yields makes yield-accretive acquisitions likely in the near term. Nonetheless, we are cautious on the attractiveness of upcoming acquisitions, depending on: 1) country-specific risks; and 2) the need for equity which would dilute acquisition yields.
• Changes in assumptions. Given management’s historical strong ambitions in growth via acquisitions and improving industrial indicators, we have increased our acquisition assumption to S$357m in 2010 (from S$157m), 60:40 funded by debt:equity. Separately, we increase our NPI margin assumptions to 89% (from 87.5%) and lower our cost-of-debt assumption to 2.5% (from 3%).
MLT – DBSV
On growth path
At a Glance
• Portfolio strength through stability and diversity
• Evaluating BTS opportunities
• Maintain Buy, TP $0.93
Comment on Results
Results meet street estimates. MLT reported 1Q10 results that were in line. Gross revenue fell 3.5% yoy (+1.2% qoq) to $51.4m while NPI dipped a smaller 0.9% yoy (+1.9% qoq) to $45.8m thanks to successful cost management initiatives. Distribution income grew 7.8% yoy to $30.8m (DPU 1.5cts) thanks to a 25% yoy reduction in interest cost as the group refinanced its borrowings at lower rates. During the quarter, MLT recognized $13.1m of revaluation gain from one of its properties (0.4% of portfolio value), which resulted in book NAV rising to $0.87/unit.
Resilient portfolio. Occupancy at MLT’s portfolio remained steady at 98% supported by a diversified and stable tenant base and long leases. According to management, rental outlook for 2H10 has turned slightly upbeat with increased enquiries for space on the back of economic recovery. This would enable the group to benefit with a remaining 12.5% of NLA to be renewed this year, mostly in HK and Spore.
Acquisitions and new forays into BTS opportunities. One of MLT’s much touted growth drivers is via acquisitions. Apart from third party targets, it can also tap its sponsor’s pipeline in Vietnam, China and Malaysia. Recent tie-up between sponsor and Itochu to develop US$300-500m of logistics projects over the next 3-5 years would further expand this pipeline. MLT’s current balance sheet is healthy with gearing of 38.6% and interest cover of 6.2x.
In addition, MLT is currently looking to venture into built-to-suit (BTS) activities both in Singapore and overseas. It can undertake up to $300m of development properties based on its current $3bn portfolio value. While we see this as taking development risk, this will likely be compensated by better returns on cost.
Recommendation
Buy, TP maintained at $0.93. Despite the recent share price rise, MLT continues to offer investors attractive prospective yield of 6.9-7.3%, backed by secure income streams. In addition, growth drivers such as new acquisitions remain highly visible from its sponsor while potential ventures into the built-to-suit arena are likely to provide further upside to our valuations in the medium term. Our current estimates have factored in only $150m worth of new buys in FY10.
FCOT – DBSV
Looking secured at half time
• DPU of 0.32 Scts in line with expectations
• 89% of FY10F income secured
• Maintain HOLD, TP S$0.16
Stability in results. Frasers Commercial Trust (FCOT) reported a 2Q10 DPU of 0.32 Scts in line with projections. Gross revenues and net property income are 24% and 26% higher by 24% yoy due to (i) impact of stronger AUD vs S$ on its Australian sourced income partially offset by lower incomes from Japan due to the weakening yen, (ii) contribution from Alexandra Technopark which was acquired back in Aug’09. Interest costs declined by 17%due after the draw-down of new loan facilities back in Dec’09. As such, distributable income to unitholders net CPPU holders grew by 82% yoy to S$9.8m.
Majority of FY10F incomes secured, but renewals in Singapore could be challenging. As of 1H10, FCOT have secured c89% of its incomes. For renewals for the remaining 11% in 2H10, we are expecting some pressure on topline from Singapore (comprising c3% of gross portfolio rent) given that current asking rents for 55 market street and Keypoint are lower than expiring monthly rents of S$7.40 psf and S$5.6 psf respectively. Australia’s performance is likely to remain stable given expected stronger rental reversions at Central Park property in Perth, given low passing rents (average of A$345 psm pa), backed by a strong AUD vs S$ exchange rate.
Keeping asset portfolio updated & relevant. Apart from organic growth, FCOT is evaluating enhancement plans at Keypoint and China Square Central, aimed at boosting occupancy levels there. In addition, the manager is also looking at acquisition opportunities in Singapore and Australia and will only execute these plans if it is accretive to the trust.
Maintain HOLD, TP S$0.16. While we acknowledge that FCOT trades at an attractive 0.5 x P/BV with relatively secured FY10-11F yields of 7.9-8.3%, we believe that catalysts to emerge upon more certainty from its operations and its asset enhancement plans.
Cambridge – Phillip
1QFY10 Results
• 1Q10 revenue of $18.6 million, net property income of $16.3 million, distributable income of $11.1 million.
• 1Q10 DPU of 1.27 cents.
• Disposal of assets worth $21.5 million, 10% take-up for 4Q09 DRP
• Maintain hold recommendation, fair value $0.51
Consistent Results
Cambridge registered 1Q10 revenue of $18.6 million (+1.3% y-y, -1.5% q-q), net property income of $16.3 million (+1.2% y-y, -2.7 q-q) and distributable income of $11.1 million (7.8% y-y, -7.2% q-q). DPU for the quarter was 1.27 cents (-1.3% y-y, -7.5% q-q). Stable growth y-y resulted from the annual rent increases. However as the Trust had started divesting assets from 4Q09, q-q results reflected the decrease in income. DPU was higher in 4Q09 compared to 1Q10 due to the dividend income from AIMS AMP Industrial REIT. Contribution in 1Q10 was minimal at $0.1 million. Cambridge has since fully divested its interest. Portfolio occupancy continues to climb and improved to 99.9%.
We continue to see progress on the assets divestment program. Cambridge disposed another 32 strata units of the 48 Toh Guan Road East property for $21.5 million, approximately 7.5% above book value. To-date, it has sold $28.1 million of assets. The Trust has classified on its balance sheet another $70 million of assets for disposal. The Dividend Reinvestment Program (DRP) was carried out for 4Q09 and received an approximate 10% take-up rate, translating to $1.1 million of funds. The proceeds from the divestments and DRP program are earmarked for asset enhancements as well as reducing debt.
Capital management
To recap, Cambridge has total debt of $390.1 million, which is due in 2012. Gearing is at 42.6%. Management has a long term gearing target of 30-35% and this will be achieved through a combination of divesting non-core assets as well as accumulating funds from the DRP.
Forecasts
The sales of the assets above book value bolster our view that industrial capital values are holding up well and should not see further weakening. We also like to see the amount of debt reduced as we feel it is the main overhang on the Trust, with a gearing ratio of 42.6%, it is one of the highest geared REIT. We make some changes to our assumptions, raising our occupancy projection to 99% while incorporating loss of revenue from the divestment assets and also increasing the amortised loan transaction amount to the distributable income. We further assumed that the trust reduced its gearing to 39% at year-end. Our DPU for FY10E is 4.92 cents, which translate to a yield of 9.7%. We raised our fair to $0.51 and maintain our hold recommendation.