Month: January 2012
CMT – BT
CMT’s Q4 DPU falls 2.5% to 2.3 cents
It posts distributable income of $75.5m, little changed from the year before
CAPITAMALL Trust (CMT) rounded up the financial year with a slight uptick in distributable income in its final three months, even as distribution per unit (DPU) fell 2.5 per cent to 2.3 cents.
CMT posted a distributable income of $75.5 million for the October to December period, little changed from $75.4 million the year before. DPU was 2.3 cents for the fourth quarter.
Unitholders can expect to receive distribution of 1.28 cents per unit for the period Nov 10 to Dec 31 on Feb 29. An advanced distribution of 1.02 cents per unit was paid on Jan 6.
For the full year, distributable income rose 2.3 per cent to $301.6 million. DPU was 9.37 cents – a yield of 5.35 per cent based on CMT’s closing price of $1.75 per unit on Jan 17 – against 9.24 cents a year ago.
FY2011’s performance was attributable to contributions from Clarke Quay and Iluma, as well as rental increases from new leases and renewal of existing leases, said CMT.
Gross revenue for the quarter rose 4.3 per cent year-on-year to $157.9 million. Iluma accounted for a $3.3 million increase in gross revenue, while the other malls contributed an increase of $3.2 million.
Said James Koh Cher Siang, chairman of CapitaMall Trust Management Limited (CMTML), the manager of CMT: ‘We renewed 503 leases with a positive rental reversion of 6.4 per cent, and achieved a 6.3 per cent year-on-year increase in tenant sales.’
High occupancy rates were generally maintained at CMT’s malls, apart from The Atrium@Orchard and Iluma, which clocked in 65.5 per cent and 53.3 per cent occupancy rates respectively, due to existing asset enhancement work. CMT portfolio’s overall occupancy rate as at end-2011 was 94.8 per cent.
CMT also said its asset-enhancement initiative (AEI) at Clarke Quay will start in Q2 this year. CMT intends to recover space from its existing anchor tenant to optimise the use of Block C and refresh the tenant mix; about 60 per cent of the new speciality area has already been committed.
Post-AEI, average rent is expected to increase from $3.80 psf per month to $6.87 psf per month.
The projected capital expenditure for this initiative is $15.6 million, with an expected return on investment of 13 per cent. Incremental net property income from this property is expected to be $2.02 million, when works are completed in 3Q 2012.
Other AEIs in progress include JCube, The Atrium@Orchard, and Illuma. To date, over 90 per cent of NLA at JCube has been committed; the mall is expected to open in the first quarter of 2012.
Atrium@Orchard and Iluma are on track to be completed by end-2012 and June, respectively.
Steps are also being taken to reposition Sembawang Shopping Centre, (SSC) said Simon Ho, chief executive of CMTML.
‘We’re not shy to adjust. If things don’t go right, we adjust. I think SSC would be a case in point,’ he said. ‘We’re bringing in some educational tenants as well because we see an opportunity … (These tenants include) Adam Khoo and Kent Ridge tuition centre. That will strengthen the overall trade mix in the mall itself,’ he said.
A separate area of concern is property operating expenses, which rose 18.5 per cent year-on-year to $59.1 million in Q4. Steps to mitigate this include the the replacement of chillers in IMM and Tampines Mall.
CMT said it expects utility savings from properties including Lot 1, Junction 8, and Rivervale Mall from Q2 onwards, although the full impact of the savings will only take effect from 2013.
CMT said its strong foundation would enable it to ride out potential economic uncertainties, partly because of the defensiveness of its portfolio, which is underpinned by predominantly necessity shopping malls, and rental upside from ongoing AEIs, which will be realised progressively over the next two years.
Westgate, a new mixed development in Jurong, had its groundbreaking earlier this month. Its target completion date is end-2013.
CMT’s counter ended yesterday down half a cent at $1.745.
A-REIT – CIMB
Stable performance
Rental renewals in the quarter rose strongly relative to the last renewal period even though new take-up is slowing. We anticipate resilient yields helped by limited lease renewals in the coming year and boosted rents after asset enhancement.
3Q12/YTD DPU forms 25% and 74% of our full-year estimate. The results are slightly ahead of consensus. We raise our DPU and DDM-based TP (disc rate: 8.6%) to account for acquisitions announced in Dec 11. Maintain OUTPERFORM on portfolio resilience.
Renewal rates strong, though new take-up was slow
Rental renewals rose strongly (compared to the last renewal period, typically three years ago) by 5.7-28.4%, led by the logistics segment (which was 18% below market rents). However, new take-up slowed to 0.5-3.6% for the three sectors. Occupancy at multi-tenanted properties dipped to 92.4% from 93.0% in 2Q12 while portfolio occupancy moderated from 96.4% to 95.9%. This was attributed to the acquisition of Corporation Place, which had a low occupancy rate (79.6%) and the commencement of refurbishment work at 9 Changi South Street 3, which affected occupancy.
Asset enhancement
Phase 1 refurbishment of 10 Toh Guan Road has been completed. About 57% of the additional 87,000sf space created has been pre-committed, resulting in an estimated 12% ROI for Phase 1 investment. We estimate gross rents of S$4psf for this space. Separately, the manager is adding space to 9 Changi South Street 3.
Accounting for Dec acquisitions
We account for the acquisitions of Corporation Place and 3 Changi Business Park Vista totalling S$179m, assuming full contributions in FY13. We anticipate DPU accretion of 0.1ct (less than 1%) at 88% occupancy.
K-REIT – CIMB
Digesting OFC
With the beginning of job cuts and upcoming office supply, we think it’s too early to turn positive on K-REIT. Though nowhere near breaching loan covenants, risks of cash calls are fairly high, given its high aggregate leverage.
4Q11/FY11 reported DPU is broadly in line with consensus and our estimates, at 19/95% of our FY11. We fine-tune our DPU estimates but keep our DDM-based TP (disc rate: 9.6%). Maintain Underperform.
Office headwinds
4Q11 DPU was down 18% yoy and 29% qoq as contributions from Ocean Financial Centre (OFC) were overwhelmed by higher interest costs and an enlarged unit base after its rights issue. The dip should be temporary given only two weeks of contribution from OFC vs. full unit-base expansion. While a new tenant has been secured for OFC (taking occupancy to 85% from 80%) and remaining lease expiries are limited in FY12, occupancy was flat at Prudential Tower (94%) and 77 King Street (88%) from 3Q.
Delayed impact
We reckon that the impact of an office slowdown could have been delayed, as businesses slow towards year-end and with job cuts only starting to kick in. Management has yet to note major signs of tenant distress, with asking rents still quite stable. So far, one tenant at MBFC 1 has raised the topic of subletting though it has yet to go ahead with the proposal.
Aggregate leverage at 42%
While management is comfortable with current leverage, we remain concerned about the potential of office asset devaluations. K-REIT’s assets are pegged to levels in Oct 11 when OFC was being acquired, implying downside risks. We foresee a cash call for Marina Bay Financial Centre Phase 2 though this could be pushed back on concerns of corporate governance after the OFC acquisition.
StarHill Global – BT
Judge denies Starhill’s request to set new rental
Existing rent review mechanism ‘still operable’, she says
A SINGAPORE High Court judge has denied an application by Starhill Global Reit for the court to set new retail rental rates with its master tenant, Toshin Development Singapore, in Ngee Ann City mall, saying that an existing rent review mechanism is ‘still operable’.
Starhill wanted the court to determine the prevailing market rent of the Toshin lease after a dispute erupted between the parties over the rent review process.
Toshin, a unit of Takashimaya, leases more than 225,000 square feet in Ngee Ann City, which it then sub-leases to luxury brands such as Chanel, Louis Vuitton, Burberry and Tiffany & Co.
But in a grounds of decision issued last Friday and made public yesterday, High Court Justice Lai Siu Chiu declined to order an inquiry into the market rental rate of the premises, saying she ‘had (her) reservations about the legitimacy of this remedy’.
‘In substance, the latter remedy would amount to the court substituting its own terms for those in the lease agreement, which was a contract made between the parties,’ Justice Lai wrote.
Starhill claimed that the review mechanism was no longer workable because Toshin had allegedly breached its lease when it ‘unilaterally’ hired seven valuers from July 2010 to February 2011 prior to a joint conduct of the rent review exercise for a new rental term starting on June 8, 2011.
Starhill alleged that if any of the seven valuers that had been engaged by Toshin were to participate in the rent review process, then their findings would be ‘tainted by conflicts of interest’.
But Justice Lai found ‘that the valuers were not involved in a conflict of interest, and . . . (Toshin) had not obtained any unfair advantage by engaging seven of the eight valuers in 2010’.
‘(Toshin’s) objectives in engaging valuers for the 2010 valuation included the need to plan (its) business operations for the future, including negotiations with its sub-tenants on rental rates; and also the need for the Takashimaya group . . . to prepare reports for its shareholders,’ Justice Lai wrote.
‘I’m hard pressed to discern any apparent bias. I had opined . . . that conflicts of interest in the sense of the valuer being conflicted between (Starhill’s) and (Toshin’s) interests are not an issue in this case. Further, the possibility of financial interest in future remuneration from (Toshin) to the valuers was not alleged in this case,’ she wrote. ‘To my mind, there was no justification for the independence of the valuers to be compromised by an allegation of bias.’
Starhill has appealed against Justice Lai’s decision to the Court of Appeal, which is scheduled to hear the case next month. Toshin is represented by senior counsel Cavinder Bull of Drew & Napier LLC.
Sealed in 2008, the lease agreement between Starhill and Toshin will expire in 2013 and rental renewals are due every three years.
Under the rent review mechanism, both parties will agree on the new rental rate, which has a cap of not more than 25 per cent from current rates.
If no consensus is reached, both parties will jointly nominate three valuers. Should there be no agreement on the nomination, they could jointly request that the three valuers be nominated by the president of the Singapore Institute of Surveyors and Valuers.
A-REIT – BT
Acquisitions lift A-Reit’s Q3 DPU by 5.8%
Revenue rises 15.7% to $127.3m while net income climbs 11.6% to $93.9m
ASCENDAS Real Estate Investment Trust (A-Reit) saw better results for its third quarter ended Dec 31, 2011, on the back of increased rental income arising from the completion of projects and acquisitions since December 2010.
Gross revenue for the quarter climbed 15.7 per cent year-on-year to $127.3 million as rental from acquisitions rolled in. Net property income rose to $93.9 million, up 11.6 per cent from the year before.
Total amount of income available for distribution also jumped 17.4 per cent to $72.5 million. As a result, distribution per unit (DPU) for Q3 came in at 3.48 cents, 5.8 per cent higher than the 3.29 cents a year earlier.
Cumulatively, for the nine months since the start of the financial year, gross revenue rose 10.2 per cent from the previous year to $368.9 million, while net property income rose 7 per cent to $273.2 million over the same period.
This led to an 11.9 per cent increase in the total amount available for distribution to $208.9 million, translating to a DPU of 10.06 cents.
Yesterday, the counter closed three cents, or 1.5 per cent, higher at $2.01.
Commenting on the industrial Reit’s occupancy, chief executive officer and executive director of the Reit’s manager, Tan Ser Ping, said: ‘Occupancy for the multi-tenanted properties and the portfolio declined marginally from the previous quarter to 92.4 per cent and 95.9 per cent from 93.0 per cent and 96.4 per cent respectively due to the acquisition of a property in the third quarter which has a relatively low occupancy. However, positive rental reversions of between 5.7 per cent and 28.4 per cent were achieved across all segments.’
The Reit’s aggregate leverage as at Dec 31 stood at 34.3 per cent.
The group expects a stable performance for its full financial year ending March 31, 2012, barring any unforeseen events.