3Q11 results broadly in line

3Q11 results broadly in line. CapitaMall Trust (CMT) reported 3Q11 distributable income of S$77.4m, or a DPU of 2.42 Scents, which is up 2.6% versus 3Q10; it also represents an annualized distribution yield of 5.10% based on the last traded price. 3Q revenue came in at S$159.2m, clocking an S$11.0m YoY increase mainly due to an additional S$4m from Illuma and S$7m from higher rentals. These results came in broadly in line with our expectations as YTD revenues and distributable income formed 77.1% and 72.2% of our FY11 estimates, respectively.

Operational numbers stay firm. We continue to see healthy occupancy across the portfolio at 96.0% which tracked down marginally due to enhancement works at Atrium@Orchard. Positive rental reversions across the portfolio also continued into 3Q11 as we saw 353 new leases signed YTD with 7.5% higher rentals on average. CMT’s debt maturity profile remained relatively well spread out with S$783m expected to be refinanced in FY12. The gearing ratio stayed stable at 38.4% versus 39.5% the previous quarter with the average term to maturity at 2.8 years.

Enhancement plans for Illuma announced. We expect to see asset enhancement works for Illuma take place from Nov 11 to 2Q12. Management guided that this would cost ~S$38m, and will expand the net lettable area by 4.9% to 194,306 sq ft and net property income by S$8.5m to S$19.6m annually. This would translate to a 22.4% return on investment on the AEI cost and, as a result, the yield on total cost (including AEI) for Illuma would be boosted to 5.8% from 3.8% postacquisition. We believe these targets are reasonable given CMT’s track record of mall management and its current network of retail brands familiar to local consumers.

Expect Orchard outperformance over suburban. In 3Q11, average rentals for prime Orchard Road retail space increased 5.0% QoQ while prime suburban rents were up 2.9%. We also saw the flagship store of H&M at Orchard Building start operations with a well-attended launch. Going forward into FY12, we expect current rental trends of Orchard outperformance to continue as only 16% of the estimated 657k of retail total retail supply next year would be in the Orchard area.

Maintain HOLD with unchanged S$2.06 fair value. Management continues to deliver a solid performance with Illuma enhancements to be underway. At current prices, however, many positives are likely priced in and there could be limited catalysts ahead. We also have a preference for Orchard retail exposure over suburban at this juncture. Maintain HOLD at an unchanged S$2.06 fair value estimate.

CapitaMall Trust Q3 DPU rises to 2.42 cents

Net property income grows to $107.4m; gross revenue up 7.4% at $159.2m

CAPITAMALL Trust (CMT) – which owns Tampines Mall, Junction 8 and Funan DigitaLife Mall, among others – saw its distribution per unit (DPU) for the September quarter grow to 2.42 cents, from 2.36 cents the year before.

This works out to an annualised distribution yield of 5.08 per cent, based on CMT’s closing price of $1.89 per unit on Oct 17.

CapitaMall Trust Management (CMTM), CMT’s manager, said the book closure date will be Oct 27, and that unitholders can expect to receive their September-quarter DPU on Nov 29.

CMT’s net property income had risen to $107.4 million for the third quarter ended Sept 30, 2011, from $101.2 million for the year-ago period.

Its gross revenue grew 7.4 per cent year on year to $159.2 million. Its distributable income to unitholders was $77.4 million, up 2.6 per cent from the year-ago period.

For the first nine months of the year, CMT’s DPU amounted to 7.07 cents, up from 6.88 cents for the January-September 2010 period.

CMTM chairman James Koh Cher Siang said: ‘We are pleased that CMT has delivered better results for 3Q 2011 due to improved performance and also additional contributions from Iluma (a shopping centre in Bugis) which was acquired on April 1, 2011.

Although consumer sentiment in Singapore presently remains healthy, we are cautious about Singapore’s economic outlook given the worsening economic situation in the US and Europe. Notwithstanding this, CMT’s portfolio of predominantly necessity shopping malls has, in the past, proven its resilience during the global financial crisis.’

CMTM is planning asset enhancement works for Iluma, which will begin next month. When these are complete, the net lettable area of the property will be increased by approximately 9,000 sq ft to 194,306 sq ft, and changes will also be made to the layout to improve traffic circulation within the mall, CMTM said.

CMTM CEO Simon Ho said of this and other asset enhancement works planned: ‘We will continue to focus on actively managing our existing portfolio to drive organic growth and executing our current asset enhancement initiatives in JCube (formerly known as the Jurong Entertainment Centre) and The Atrium@Orchard. We will soon kick off asset enhancement works at Iluma in November. This project is expected to improve the yield-on-cost of Iluma from 3.8 per cent to approximately 5.8 per cent upon completion of the exercise.’

RBS Equities Research said CMT is its top pick for the local Reit (real estate investment trust) sector, as it has a good retail portfolio and strong balance sheet.

‘We have a buy rating on CMT, with a TP (target price) of $2.19. The stock yields a decent 5.2 per cent and 6 per cent for FY11 and FY12 respectively, versus the commercial Reit average of 6 per cent and 6.4 per cent over the same period,’ it said.

CMT shares finished yesterday one cent down at $1.88.

Temasek and Singtel take up space at The Atrium@Orchard and JCube respectively

CMT announced that Temasek Holdings, an existing tenant at The Atrium@Orchard, will be taking up additional office space in the same building, while Telecom Equipment (Singtel) will be taking a 3-year lease at JCube.

Temasek Holdings taking up space at The Atrium@Orchard

Temasek Holdings currently has an existing lease at The Atrium@Orchard due to expire on 30 April 2012. With the additional space taken up, the group including its wholly owned subsidiary Fullerton Fund Management, will be the anchor tenant and will be occupying the majority of the office space at The Atrium@Orchard. To recap, total office NLA at The Atrium is around 230,000 sf. The 10-year lease will start from April 2012 to March 2022 and total aggregate consideration is $221.8m. CMT has commissioned CBRE to provide an independent opinion on the office lease terms and the consultancy group mentioned that the rental rates are comparable with prevailing market rates and leases of similar office premises.

Telecom Equipment (Singtel) Lease at JCube

CMT also announced that they entered into a retail shop lease with Telecom Equipment (Singtel) for a consideration of S$1.4 m. The Retail Shop Lease is for a term of three years and will commence on or around the date on which JCube obtains its TOP.

We continue to like CMT for its proactive leasing strategy. Upon the pre-commitment of Temasek Holdings, the office space at The Atrium@Orchard would be well committed ahead of its completion at end-2012. We understand that the group has started the marketing for the retail space and we should get an update progressively. Meanwhile, leasing demand at JCube remains healthy with the mall achieving more than 80% pre-commitment. The mall is expected to complete by end-2011. Maintain BUY with TP S$2.05.

CapitaMall Trust in office leases with Temasek, Fullerton

Renewal, new leases at Atrium@Orchard; JCube shop lease for SingTel unit

CAPITAMALL Trust (CMT) has entered into office leases with Temasek Holdings and its wholly owned subsidiary Fullerton Fund Management Company, for an aggregate consideration of around $221.8 million.

Temasek is currently an anchor tenant at The Atrium@Orchard, which is part of CMT’s portfolio. Its leases are due to expire on April 30, 2012.

CMT yesterday renewed Temasek’s leases and granted new leases to it. It also entered into a lease with Fullerton.

Temasek has a deemed interest of around 29.97 per cent in CMT and is regarded as a controlling unitholder. As a result, the office leases constitute ‘interested person transactions’ under the Listing Manual and ‘interested party transactions’ under the Property Funds Appendix.

CMT’s manager commissioned CB Richard Ellis (CBRE) to provide an independent opinion on the office leases’ terms. The property consultancy found that the rental rates are comparable with prevailing market rates and leases of similar office premises, and CMT’s manager viewed the aggregate office lease consideration as fair and reasonable.

CMT also entered into a retail shop lease with Singapore Telecommunications’s wholly-owned subsidiary Telecom Equipment, for a consideration of around $1.4 million.

Telecom Equipment will take up a three-year lease at JCube, which is undergoing refurbishment and is due to open in the first quarter of 2012. The lease will start on or around the date JCube receives its Temporary Occupation Permit.

SingTel is a subsidiary of Temasek and CMT also commissioned CBRE to provide an independent opinion on the terms of the retail shop lease.

CBRE’s opinion indicates that the rental rate is at market level and the other commercial terms in the lease are consistent with normal commercial terms. CMT’s manager viewed the retail lease consideration as fair and reasonable.

CMT ended trading on the stock market yesterday at $1.90, one and a half cents higher.

2Q11 results in line

2Q11 DPU of 2.36 S-cents in line. CapitaMall Trust (CMT) reported 2Q11 distributable income of S$75.5m, or a DPU of 2.36 S-cents, which is up 3.1% versus 2Q10. Based on the last closing price of S$1.94, this represents an annualized yield of 4.9%. Results are in line with our expectations as 1H11 distributable income of S$148.7m constituted 50.6% of our FY11 forecast. Gross revenue for the quarter came in at S$159.6m, which is up 12.0% YoY on the back of Clarke Quay and Illuma’s contributions and positive performance across the portfolio.

Improved performance across portfolio. 1H11 gross revenue, on a same-store basis, increased 4.2% YoY. We saw increased contributions from all malls except the Atrium which is undergoing enhancement. Same-store operating expenses in 1H11, however, increased 8.8% YoY due to higher utility and labor costs. Shopper traffic and tenant sales in 1H11 grew 3.6% and 8.0% YoY, respectively. Tenant sales also increased broadly across trade categories in 1H11. 269 leases were renewed in 1H11 with 7.8% higher rentals rates, with 242 remaining leases expiring this year. Occupancy remained healthy at 98.1% as of end 2Q11.

JCube 80% pre-committed. JCube is 80% pre-committed to date before its scheduled opening in 1Q12. The asset enhancement at Atrium@Orchard is on track to complete in 4Q12 and management guided that occupancy at the Atrium could fall further to 35%-40% in mid-2012 as enhancement progress. Junction 8 will start its enhancement works in 3Q11.

Debt due 2011 refinanced. Management issued US$645m five-year secured floating rate notes and drew down on a S$200m five-year term loan facility to refinance the existing S$964m maturing in Sep 11. This lengthened the average term to maturity to 3.0 years currently versus 2.6 years as of 1Q11 end. Current gearing is at 38.2% and cash on the balance sheet stands at S$828.6m. There would be no debt maturing until the S$783m term loan under Silver Maple which is due in Oct 12.

Maintain HOLD at fair value of $2.06. We continue to view CMT positively due to improving performance across its portfolio and smooth execution of its strategy by the management team. In our view, however, most of these positives are already priced in. We revise our FY11 distribution forecast up by 1.2% and our fair value estimate to S$2.06 versus S$2.05 previously. Maintain HOLD. We will turn buyers around S$1.86.