Month: April 2012
CCT – BT
CapitaCommercial Trust's Q1 DPU gain 3.3%
CapitaCommercial Trust (CCT) announced on Friday its first quarter distribution unit (DPU) was at 1.90 Singapore cents, an increase by 3.3 per cent from the DPU (1.84 Singapore cents) a year ago.
The distributable income was at S$53.9 million for its first quarter which ended 31 March 2012, 3.4 per cent higher than last year's standing.
CCT's 1Q net property income registered no change in percentage year-on-year, while its gross revenue fell by 3.9%, to $87.43 million.
Following the company's refinancing strategy this year, CCT's average cost of debt has decreased to 3.1 per cent in 1Q 2012 from 3.6 per cent in 4Q 2011
CCT's Singapore portfolio occupancy rate was at 96.0 per cent, higher than the market occupancy rate of 90.7 per cent.
Its Grade A occupancy was at 94.4 per cent despite the market's decline to 87.1 per cent.
The outlook for CCT is optimistic as they have recently acquired Twenty Anson, a new and well-located prime office building which will be poised to contribute income to 2Q 2012.
Another 17 tenants from diversified business sectors have also been added to CCT's stable.
"CCT's gearing at 30.5 per cent is still at the low end of our target range, giving us good headroom for future investment opportunities," said Ms Lynette Leong, Chief Executive Officer of CapitaCommercial Trust Management Limited which manages CCT.
No distribution is said to be given for Q1.
CLT – OCBC
POSITIVE START TO FY12
•1Q12 results within expectations
•High cash flow and earnings visibility
•Likely in acquisition mode
Stable set of 1Q12 results
Cache Logistics Trust (CACHE) released its 1Q12 results after market close yesterday. NPI grew 11.6% YoY (flat QoQ) to S$16.1m, while distributable income rose 7.6% (flat QoQ) to S$13.4m. The YoY performance was mainly driven by incremental rental income from upward rental adjustments and acquisitions over the past year. DPU for the quarter came in at 2.086 S cents and represented a 6.9% YoY increase. The results were in line with our expectations, with DPU forming 25.0% of our full-year estimate (24.8% of consensus).
Portfolio performance remains robust
As at 31 Mar, CACHE’s portfolio properties remained 100% occupied with a combination of triple-net master leases (with locked-in annual rental escalation of 1.5-2.0%) and multi-tenanted lease structures. The weighted average lease expiry (WALE) stood at 4.4 years, relatively unchanged from the WALE of 4.65 years seen in prior quarter. Management reiterated that there will be no lease renewal in 2012 (<2% of GFA due for renewal in 2013). This provides a significant amount of earnings visibility and stability.
Private placement improves financial position
With the recent issuance of 60m new units to raise ~S$57.1m in net proceeds via a private placement, we note that CACHE’s aggregate leverage improved from 29.6% as at 31 Dec 2011 to 27.7%. This gives the REIT an estimated S$110m of additional debt headroom for future investment opportunities. Average all-in financing cost increased marginally from 3.89% in 4Q11 to 3.94%, but interest cover was maintained at a strong 8.0x.
Maintain BUY
Going forward, we believe CACHE will actively seek growth avenues now that it is well capitalized. In the meantime, we understand that the acquisition of Pan Asia Logistics Centre is due to complete by end Apr. The warehouse has an initial NPI yield of ~7.7% and is likely to provide marginal lift to its income. We make no changes to our forecasts as results were in line. Maintain BUY and S$1.11 fair value.
PCRT – CIMB
Change in major shareholder
Change of shareholding saw PCRT’s local partner offloading his stake in PCRT. Mr Kuok now holds a 17% stake. New additional earn-out amount negotiated with Summit Group buffers this negative news.We take comfort in greatercertainty of higherdividend yields till 2014.
Without further guidance on target distributions for FY13/14, we leave our estimates unchanged. No change to RNAV or target price (35% discount to RNAV)either.Maintain Outperformon cheap valuations, attractive dividend yields and strong NAV growth.
WhatHappened
Mr Tong Jinquan has pared down his 15% stake in PCRT. Mr Kuok Khoon Hong replaces him as major shareholder with 17% ownership. An additional earn-out agreement has also been negotiated with local partner Shanghai Summit, wholly-owned by Mr Tong, for an amount up to Rmb342m for the period beginning1 July 2013 to 31 December 2014.
What We Think
The local partner’s sale of a 15% stake does not inspire confidence.However, additional earn-outbuffers the negative news. As this is likely to be used to support distributions, we take comfort in the added certainty of higherdividend yields. We estimate that the negotiated amount is sufficient to guarantee 8-8.5% dividend yieldsfor the next two to three years. We previously expected a dip in dividend yield in 2014. A quick chat with management confirms that there have been no changes to existing arrangements as laid out during the IPO. Mr Tong still retains a 50% stake in Longemont assets –interests are still aligned for these projects. The operations on the ground and PCRT’s relationship with Mr Tong remains unaffected.Transfer of shares to Mr Kuok (off-market transactions) was by way of mutual agreement, for Mr Kuok to gain more exposure to PCRT’s assets and PCRT’s for business dealings with Mr Tong to cease classification as “interested-party” transactions.
What You Should Do
Trust PCRT.As construction and acquisition forits portfolio of assets continue as planned, double-digit NAV growth is still expected.Trading at 0.7x P/BV and a 50% discount to our RNAV, valuations are undemanding (CRCT:0.9x P/BV, 7.7% 1Q12 annualised dividend yield).
CMT – OCBC
ENHANCEMENT WORKS COMING ALONG SMOOTHLY
•1Q12 distributable income of S$76.6m
•Expect reversions to ease ahead
•AEIs to drive distribution upside
1Q12 results broadly in line
CapitaMall Trust (CMT) reported 1Q12 distributable income of S$76.6m (DPU: 2.30 S cents) which is 4.6% higher YoY. This is broadly in line with our expectations and make up 23% of our FY12 forecast. Topline came in at S$155.2m, up 0.4% YoY – rental income was boosted by higher rentals and the Illuma acquisition but mostly offset by lower income from the Atrium due to enhancement works.
Rental reversions could ease ahead
1Q performances across CMT’s portfolio stayed firm; occupancy improved to 96% with pressure coming mostly from Atrium’s enhancement works. Average rental reversions over 1Q12 remained positive at 6.1% across the portfolio. However, we forecast reversions to ease into the year, as the economic outlook softens. Operating expenses (Opex) on a comparable mall basis fell 6.7% YoY which surprised us mildly; we understand from management that this was mostly attributed to one-time items and expect opex ratios to track closer to FY11 levels ahead.
Malls returning from AEIs – a key driver for growth
We continue to see CMT execute well on its asset enhancement initiatives (AEI) – a key driver for distribution upside ahead as malls under enhancement return to operations over FY12-13. JCube opened on 2 Apr 12, with 99% of NLA committed at average rentals of S$11-12 psf, and we expect contributions to begin in 2Q12. Management expects a 9.7% ROE on investment upon stabilization. Enhancement works for Illuma (to be renamed as Bugis +) remains on track to complete by Jul 12, and over 90% of the tenants are slated to start operations by Jun 12. We observe a significant revitalization of the retail tenant mix with Uniqlo, Sephora and Aeropostale coming into the mall. The Atrium would complete its enhancement in 4Q12. The take-up rates at Bugis + and Atrium are encouraging with over 80% and 73% of NLA currently taken up.
Maintain BUY with unchanged fair value
We continue to like CMT for its AEI execution and believe that valuations remain attractive at current levels. Maintain BUY with an unchanged S$2.02 fair value estimate.
Office REITs – CIMB
Office REITs: Picking a bottom
We believe that the office sector is approaching the end of a de-rating cycle. Leasing momentum appears to be picking up,while threats of asset devaluations have subsided. With the stocks trading at 0.6-0.8xP/BV, we think risk-reward favours a positioning for a bottom.
We are Overweight on office S-REITs, tweak DPUs and up our DDM-based target prices on lower risk premiums and discount rates. We upgrade Suntec REIT to Outperform from Trading Buy while keeping other recommendations unchanged. Our top office picks are CCT and Suntec REIT.
Office rents could bottom soon
We believe that the office sector is approaching the end of a de-rating cycle. Average rents are now back at 2Q09 levels, around the period of the global financial crisis. Grade-A rents are still 42-48% below their previous peak in 2008, and below their 15-year mid-cycle average of S$10.50-11 psf.
Rents find support
Leasing momentum, while still slower than in 2011, appears to have been picking up recently. Super-Grade-A rents appear to be supported at S$10-12psf while office players indicate that deals are still being done at S$8.50-10psf for prime office space in the CBD. Occupancy/ pre-commitments for new major office buildings delivered have so far exceeded 70%. We believe rental expectations will progressively rise when occupancy hits >80%.
Office REITs DPUs well supported
DPUs for office S-REITs look well-supported given low lease expiries for 2012 (1-10% of overall NLA), low expiring rents locked in 2009 and high overall occupancy of >96%. We expect positive rental reversions to resume in 2013.
Stock picks
Trading at 0.6-0.8x P/BV and forward yields of 6-8%, we think risk-reward favours a positioning for a bottom. Our top office picks are CCT and Suntec REIT. We like CCT for its stronger balance sheet and potential upside from its 60% share in Raffles City. We also like Suntec REIT for its cheap valuations of 0.6x P/BV and potential upside on renewals at Suntec City office.