Author: tfwee
CMT – DBS
The Primer on S-Reits
90% distribution to manage AEI cashflows. CMT reported 1Q07 results in line with expectations. Gross revenue grew by 27% y-o-y and 1% sequentially, with higher contributions from the acquisition of a 40% interest in Raffles City. Net property income grew by 30%, in line with the expansion of its asset portfolio. Mitigated by higher interest costs and asset management fees, distributable income grew by 25% y-o-y. However with 90% payout of distribution income to stabilise operating cashflows for ongoing asset enhancement initiatives, DPU arrived at three cents per share (ex on 26 Apr) which translates to annualised yield of 3.3%.
Buys out CRS, on track for S$7bn. CMT has announced that they are acquiring the remaining 73% stake in CapitaRetail Singapore Fund (CRS), a securitisation structure which incubates Lot One Shoppers Mall, Bukit Panjang Plaza and Rivervale Mall, based on total asset price of S$710m, at an average property yield of 4.9%. Planned AEI is already in place for Lot One with decantation expected to add another 10,600 sf, and we expect plans to be unveiled for the other two malls. Moving forward, we expect retail asset Clarke Quay and the iconic Orchard Turn development to form the pipeline to reach portfolio target of S$7bn by FY09, together with 20% strategic stake in CRCT as an alternate growth vehicle into the China retail sector.
But value creation through AEIs still the way to go. For investment property assets, retail malls in our view have the most scope for asset enhancement initiatives. CMT continues to illustrate this view, with an array of AEIs in progress. Reconfiguration of IMM and a new two storey annex is on-going, as well as Tampines Mall, Plaza Singapura and Junction 8. Sembawang Shopping Centre has begun redevelopment works expected to complete by 1Q08. With these AEIs scheduled for completion by 1Q08, they are expected to increase NPI by another S$15m, translating to 9.8% initial yield on capital expenditure, delivering more accretion than acquisitions at marked to market prices and imply value creation by another S$146m, assuming market cap rate at 5%.
Cambridge – DMG
Defensive with growth
Cambridge Industrial Trust (CIT) stands out as most defensive amongst industrial S-reits. FY07 yield of 7.3% is a significant 90-290bps above its comparable peers and backed by a stable income stream. The low P/book NAV of 1.22x indicates little acquisition upside have been factored into share price despite a visible asset pipeline. Rewarding partnerships with logistics services supplier CWT and Mitsui as well as wide business networks, have and would continue to supply a ready stream of new purchases. Acquisition-led growth coupled with organic expansion should translate to a DPU Cagr of 7-8% over the next 2 years. Amongst industrial S-reits, CIT has the greatest scope to enhance its properties which could boost asset backing and overall yields in the medium term. Our DCF-backed price target of $1.01 translates to a potential absolute return of 30%. Recommend buy.
Industrial and logistics-focussed reit. Cambridge Industrial Trust (CIT), an industrial and logistics-focussed reit has one of the most defensive income profile. Long rental contracts ensure sustainable earnings while higher-than-industry-average security deposits would iron out any rental fluctuations from tenant movements.
Growth via acquisitions. Its objective to expand asset base by $500m pa is within reach. In addition to the $119m worth of new buys, it has the first right of refusal and last look at CWT’s assets within the first 3 years of listing. Of the 2.3-2.6msf pipeline, 1.2msf are scheduled to complete this year. Beyond this, CIT can tap from C & P Holdings’ assets.
Inbuilt organic engine. It is well placed to leverage on the rising industrial market with inbuilt rental escalation clauses of 5-7% every 2-3 years. An estimated 78% of portfolio space is up for renewal in FY08, translating to a 4% organic increment to DPU.
The RNAV angle. A portion of CIT’s assets can be redeveloped to maximize floor area. We reckon rebuilding only those properties with <1x plot ratio to their maximum potential, could raise total GFA by 34% and add 10cts or 15% to asset backing, based on current levels. More importantly, these additions do not incur corresponding land costs and returns from these improvements should further enhance overall portfolio yields. These have not been factored into our present estimates.
Attractive risk-reward ratio. CIT offers value in view of its high yield, low beta and defensive attributes. At low P/book NAV of 1.22x, little acquisition expectation appears to have been built into share price and any newsflow should likely surprise on the upside. At our DCF-based price target of $1.01, assuming increasing asset base by $500m over the next 12 months, yield would still be attractive at 5.9%. Recommend buy.
CRCT – Daiwa
A rocky start
· We maintain our 4 (Underperform) rating for CapitaRetail China Trust (CRCT) and six-month target price of S$2.65, based on our RNG valuation method, after the announcement (on 19 April) of its maiden results for 1Q07.
· At first glance, the 1Q07 performance looked very poor (in our opinion). For the underlying seven-mall portfolio, gross revenue was 12.7% lower than our prorated 2007 forecast, while netproperty income (NPI) was 16.8% below our forecast. Fortunately, the negative variances appear to us to be confined mostly to 1Q07, or at worst to 2007.
· Even though some of CRCT’s ‘long-term’ investors are more focused on the distribution-per-unit (DPU) boost from acquisitions and major asset enhancements, the latest results are not likely to increase their investment confidence, in our opinion.
· We have revised down our NPI forecasts by 6.3% for 2007, 2.9% for 2008 and 2.2% for 2009. At the DPU level, we have revised down our forecast by 0.5% for 2007 and revised them up by 2.2% for FY08 and 2.5% for FY09 on net-interest savings (from lower financing costs and higher interest-income assumptions).
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