Month: April 2013
MCT – CIMB
A difficult year to replicate
With strong rental reversions from VivoCity this year, we believe that MCT has set a high growth benchmark in FY13 that will be difficult to replicate in FY14. Trading at 1.4x P/BV and forward yields of 4.7%, further upside will need to come from major AEIs and acquisitions.
4QFY13/FY13 DPUs came in slightly above our and consensus expectations, forming 27/102% of our FY13 forecast. The variance is due to the earlier completion of its office acquisition. We tweak our DPUs and DDM target price (discount rate: 6.9%) higher for stronger VivoCity margins but maintain Neutral. Re-rating catalysts include accretive acquisitions.
A difficult year to replicate
We expect upside from rental reversions at VivoCity to peter out in FY14. MCT performed well in 4Q. 4Q DPU was up 12% yoy, thanks to positive rental reversions off a lumpy lease expiry profile and higher occupancy on existing assets. DPU was up 4% on a qoq basis.
VivoCity, a star performer, remains in the pink of health as it booked a 33% increase in fixed rents, while shopper traffic and tenant sales grew by 3.0% and 3.7% respectively. Coupled with healthy occupancy cost of ~16%, this should support positive rent reversions, though the increase should peter out with a more moderate 15% of retail leases expiring in FY14 vs. 33% in FY13.
Further leasing progress for other assets
Further leasing progress was made at PSAB Office and ARC, taking their committed occupancy to 100% and 81.9% respectively. The former benefitted from an expansion in demand from existing tenants, while ARC could see improvements as footfall and tenant sales pick up.
Maintain Neutral
With strong rental reversions and acquisition accretion, we believe that MCT has set a high growth benchmark in FY13 that will be difficult to replicate in FY14. Trading at 1.4x P/BV and forward yields of 4.7%, we think that positives are largely priced in and further upside will have to come from major AEIs and acquisitions.
MCT – Lim & Tan
- Mapletree Commercial Trust reported fiscal fourth quarter distribution per unit (DPU) of 1.737 cents (including the advance distribution of 0.603 cents already paid on 27 February 2013) which was ahead of market expectations.
- Solid growth in 4Q ’13 net property income (+23.4% y-o-y) came from strong portfolio occupancy at both its retail (97.5%) and office (97.9%) assets, and positive rent reversion.
- Nevertheless, its gearing ratio rose to 40.9%, up from 37.6% in the same period last year, as the property owner took up additional debt for its acquisition of Mapletree Anson ( where its purchase price of S$680 million is equivalent to approximately S$2,049 psf paid).
- Going forward, the uplift in gearing ratio would make it more difficult for the trust to acquire new assets via additional debt. The high occupancy rates at both its retail and office portfolios would also leave little room for earnings to surprise on the upside.
CMT – DBSV
Enjoying the fruits of its labour
- 1Q13 DPU of 2.46 Scts was 7% higher y-o-y
- Steady organic growth profile; strategic enhancement programs to create value
- HOLD, S$2.36 TP
Highlights
Good start to 1Q13. CapitaMall Trust (CMT)’s 1Q13 topline and net property income grew 15% and 16% y-o-y to S$178.2m and S$125.1m respectively. This was largely attributable to income contribution upon the completion of its various asset refurbishment exercises at J-cube, Atrium and Bugis over the past few quarters. Organic growth remained firm, with rental revenues from its other malls increasing by c1.4% or SS$2.3m y-o-y. Rental reversion for the quarter was 6.2%, with a high retention rate of 91.3%. Property expenses grew 13% to $53.1m due to higher operating expenses as the malls re-open but margins rise slightly to 70.2%. As such, distribution income of S$93.7m was higher by 14.3% y-o-y. CMT will distribute cS$85.3m (DPU of 2.46 Scts, +7.0% y-o-y) and will retain S$6.6m for working capital and capex requirements.
Our View
Steady organic growth profile; rental reversion stable. Leasing progress at Plaza Singapura is healthy with the space vacated at Carrefour being replaced with new tenants (Cold Storage, John Little and George). IMM mall, which remains on track to reopen as a new concept “Value-focused” mall in May’13, is gaining traction and has secured 50 outlet brands. Looking ahead, the trust will be renewing close to c20.8% of its income and we expect renewal activities to remain fairly steady.
Asset enhancement to Bugis Junction to reap an IRR of 9%. Bugis Junction is proposing an enhancement exercise at Bugis Junction which will involve recovering close to 70,000sqft of space from its anchor department store, BHG and to convert them into specialty stores. Estimated to cost S$35m, while small, is forecasted to add an incremental net property income of S$3m upon completion, translating to a return of c9.0%.
Recommendation
HOLD maintained, TP raised to S$2.36. We have tweaked our estimates to account for additional capex and our reversionary estimates for its various malls. We have forecasted S$400m of acquisitions in our FY14F estimates. TP is thus raised to S$2.36 but given limited upside to our price objective, HOLD call is maintained.
CCT – DBSV
Driven by positive rental reversion
- YoY growth from rental renewal upside and 20 Anson contributions
- Low gearing and strong balance sheet give room for inorganic growth potential
- Maintain HOLD, TP S$1.72
Highlights
Earnings in line, boosted by positive rental reversion and 20 Anson. 1Q13 topline of S$96m was up 10% y-o-y on additional contributions from 20 Anson and HSBC rent reversion but down 1.2% sequentially, dragged by lower occupancy at Capital Tower. A total of 410ksf of NLA was leased/renewed in 1Q, bringing portfolio occupancy to 95.3% while average monthly passing rents improved 2.5% to an average of S$7.83psf. NPI was up 7% y-o-y (down marginally q-o-q). Income available for distribution grew 5.7% y-o-y but with the retention of S$2.7m, distributable income came in at S$55.7m or a DPU of 1.96Scts.
Our View
Earnings momentum to moderate this year. CCT would continue to benefit from positive reversions for its renewal leases as well as value add created from its AEI at 6 Battery Rd and Raffles City. The trust has a remaining 11.2% of income to be renewed this year and a further 19.1% next year. With expiring rents below current market levels, we expect the trust to be able to expand its rental earnings. This will be offset by the drop-off in yield protection from OGS from July 13. Focus on boosting occupancy level at Capital Tower should also provide further upside to earnings.
Low gearing. Gearing remains at 30.1% and the trust has only S$50m of refinancing due this year. This would provide significant headroom to look for inorganic growth opportunities.
Recommendation
Maintain HOLD. We have raised our TP to $1.72 on a slightly lower beta assumption of 0.82x, given the relatively long WALE of leases. Upside risk from OGS and Capital Tower as well as better-than-expected news of leasing performance at CapitaGreen, scheduled to complete by end 2014, could provide upside catalyst for the stock. At the current price, the stock offers FY13/FY14F yields of 4.7-4.9%.
CRCT – DBSV
Benefiting from active tenant remixing
- Results in line, positive rental reversions on higher tenant sales and shopper traffic
- Income vacuum from MZLY expected to be offset by rental expansion from other malls
- Maintain HOLD, TPS$1.78
Highlights
1Q13 results within expectations. Gross revenue and NPI, in Rmb terms, grew 6.6% and 4.6% respectively to Rmb200.7m and Rmb132m, on improved performance at all malls except MZLY, which is currently undergoing AEI. Tenant sales were up 11.1% and shopper traffic expanded 10.6% y-o-y. Distributable income, in S$, came in 4.2% higher to S$17.3m, translating to a DPU of 2.31Scts.
Successful tenant remixing strategies. The better performance was led by higher rental income on the back of an average 14.9% positive reversion over preceeding levels. CM Qibao, Saihan and Wuhu saw upward rental revisions of 7-10% on successful tenant remixing. Meanwhile, higher occupancy at Xizhimen and brand mix refinement exercise at Wangjing also lifted rents by 16-22%. This more than offset the drop in occupancy at MZLY to 72% as it ramps up its AEI.
Our View
Earnings growth q-o-q to moderate as MZLY AEI picks up pace. Going into the 2Q, we expect relatively flat q-o-q earnings growth as the MZLY AEI intensifies. The entire mall (except L1) is anticipated to close from Jul 13 to 2Q14. The income vacuum is expected to be offset by the strong rental reversions for the remaining malls. CRCT has a remaining 26.2% of income to be renewed for the rest of 2013 and a further 14% in FY14.
Low gearing. The trust has a low gearing of 25.4% and a cash hoard of S$82m on its balance sheet. This puts it in a good position to grow inorganically. Our current numbers have not factored in any potential acquisitions.
Recommendation
Maintain HOLD. We retain our HOLD call with a slightly higher TP of S$1.78 for CRCT. The trust is currently trading at 1.4xP/BV and 5.4-5.9% FY13/14F yields. We like CRCT’s ability to put in place initiatives that enable it to drive rental reversions.