Category: CMT
CMT – BT
Moody’s downgrades CMT-sponsored notes
MOODY’S Investors Service yesterday said that it has downgraded two series of notes sponsored by CapitaMall Trust (CMT) due to insufficient liquidity.
The ratings agency downgraded the US$255.5 million series 25 floating rate notes and the 175 million euro (S$300 million) series 30 floating rate notes to Aa1 from Aaa. The notes are due in April 2014 and are expected to mature in October 2012.
They were issued by Silver Maple Investment Corporation, which is sponsored by CMT – a unit of CapitaLand.
In all, Moody’s placed three series of notes on review for possible downgrades on March 1.
This was prompted by insufficient liquidity, according to the ratings firm’s latest guidelines for Singapore commercial mortgage-backed securities, or CMBS transactions.
Yesterday, Moody’s said that the series 25 and series 30 notes were downgraded. A third set of notes – the US$72.1 million series 18 floating rate notes due in December 2011 were confirmed at Aaa.
Moody’s recently published a guideline saying that the minimum level of liquidity protection should be sufficient to cover the senior payment obligations of a CMBS issuer for at least six months.
The rating of a transaction lacking sufficient liquidity will be linked to the rating of the sponsoring real estate investment trust.
In this case, the risk of insufficient liquidity is because CMT is an operating entity and is not bankruptcy remote. Moody’s said: ‘It has other creditors and if it defaults on those obligations, these other parties can bring legal action, including bankruptcy proceedings, against it. If that happens, there may be cash flow disruption upon a mortgage loan event of default.’
CMT already has the available funds to repay the series 18 notes on the expected maturity date, so the rating for this series was confirmed at Aaa.
But as there is no liquidity for the series 25 and 30 notes, the ratings for these were linked to the rating for CMT. After taking into consideration the notes’ expected maturity in October 2012 and the A2 rating of CMT, Moody’s downgraded the notes to Aa1 from Aaa.
CMT – OCBC
Share price correction presents fresh buying Opportunity
Groundbreaking at JCube development. Last Friday, CapitaMall Trust (CMT) held the groundbreaking ceremony for the new retail mall on the site of the former Jurong Entertainment Centre. The new mall, named JCube, will have net lettable area of approximately 204,000 sq ft, which is twice the original size. The project is expected to be completed in the first quarter of 2012. We expect JCube to be the key DPU growth driver for CMT in 2012 and 2013. Based on the enlarged NLA, we expect JCube to generate gross rental income of S$34.7m and net property income of S$23.9m when fully operational. With the changes in our NLA and rental estimates on JCube, our RNAV estimate has been raised by S$0.02 per share.
Development of Jurong Lake District to boost human traffic flow. Long-term outlook for the JCube development is also positive with development of the Jurong Lake District now gaining momentum. In Apr, URA launched a 205.854 sq ft land parcel for mix development in Jurong Lake District after a developer committed to bid at least S$350m for the site. In addition, URA recently sold a residential site at Boon Lay Way to Keppel Land for S$303m. Upon the completion of these projects, we expect higher human traffic flow in the Jurong Lake District and JCube, which is strategically located near the Jurong East MRT Interchange, should be a key beneficiary from the development of the region.
Positioned to grow over the long term. In the near term, we see DPU growth catalysts coming from positive rent reversion and asset enhancement (AEI) initiatives at Raffles City basement, Junction 8 (new 2-storey F&B Annex Block) and Tampines Mall (reconfiguration of shop units and side entrance). These AEI works will complete by end-2010. Over the longer term, there is still a healthy pipeline of AEIs that CMT could undertake. CMT has received planning permission from URA to increase the GFA of Tampines Mall by 94,938 sq ft for office use. For Funan DigitaLife Mall, CMT has also received planning permission from URA to increase the GFA by 360,375 sq ft (163,180 sq ft for office use and 197,195 sq ft for retail use). These projects are likely to start once when the development of JCube is completed.
Share price correction presents fresh buying opportunity; Upgrade to BUY. Our fair value, which pegged at parity to our RNAV estimate, has been raised to S$1.95 (previously S$1.93). Recent correction in CMT’s share price presents fresh buying opportunity for investors. With a projected total return of 13%, we are now upgrading CMT to BUY.
CMT – OCBC
Share price correction presents fresh buying Opportunity
Groundbreaking at JCube development. Last Friday, CapitaMall Trust (CMT) held the groundbreaking ceremony for the new retail mall on the site of the former Jurong Entertainment Centre. The new mall, named JCube, will have net lettable area of approximately 204,000 sq ft, which is twice the original size. The project is expected to be completed in the first quarter of 2012. We expect JCube to be the key DPU growth driver for CMT in 2012 and 2013. Based on the enlarged NLA, we expect JCube to generate gross rental income of S$34.7m and net property income of S$23.9m when fully operational. With the changes in our NLA and rental estimates on JCube, our RNAV estimate has been raised by S$0.02 per share.
Development of Jurong Lake District to boost human traffic flow. Long-term outlook for the JCube development is also positive with development of the Jurong Lake District now gaining momentum. In Apr, URA launched a 205.854 sq ft land parcel for mix development in Jurong Lake District after a developer committed to bid at least S$350m for the site. In addition, URA recently sold a residential site at Boon Lay Way to Keppel Land for S$303m. Upon the completion of these projects, we expect higher human traffic flow in the Jurong Lake District and JCube, which is strategically located near the Jurong East MRT Interchange, should be a key beneficiary from the development of the region.
Positioned to grow over the long term. In the near term, we see DPU growth catalysts coming from positive rent reversion and asset enhancement (AEI) initiatives at Raffles City basement, Junction 8 (new 2-storey F&B Annex Block) and Tampines Mall (reconfiguration of shop units and side entrance). These AEI works will complete by end-2010. Over the longer term, there is still a healthy pipeline of AEIs that CMT could undertake. CMT has received planning permission from URA to increase the GFA of Tampines Mall by 94,938 sq ft for office use. For Funan DigitaLife Mall, CMT has also received planning permission from URA to increase the GFA by 360,375 sq ft (163,180 sq ft for office use and 197,195 sq ft for retail use). These projects are likely to start once when the development of JCube is completed.
Share price correction presents fresh buying opportunity; Upgrade to BUY. Our fair value, which pegged at parity to our RNAV estimate, has been raised to S$1.95 (previously S$1.93). Recent correction in CMT’s share price presents fresh buying opportunity for investors. With a projected total return of 13%, we are now upgrading CMT to BUY.
SREITs – OCBC
1Q10 results review; downgrade sector to NEUTRAL
1Q CY2010 results review. Four out of the eight S-REITs under our coverage reported earnings in line with our estimates. CapitaCommercial Trust (CCT) and Frasers Centrepoint Trust (FCT) beat our DPU estimates by 7.8% and 6.7% respectively. CCT benefited from positive rent reversions and lower property tax that drove a 11% YoY increase in net property income. FCT, meanwhile, beat our estimates (and the manager’s own guidance) on the back of a strong performance from Northpoint post asset enhancement works. Conversely, A-REIT and LMIR Trust missed our earnings expectations for 1Q CY10; with A-REIT missing our DPU estimates because of one-off upfront fees for loans. As a gauge, in 4Q CY09 five REITs reported results in line, three above our expectations and none below.
Guidance was ‘cautiously optimistic’, and growthoriented. Several managers indicated an intention to optimize yield and grow the portfolio both organically (asset enhancement initiatives, including CapitaMall Trust (CMT) and Ascott Residence Trust (ART)) and inorganically (acquisitions, including Mapletree Logistics Trust (MLT)). With this focus on growth, we believe S-REIT’s balance sheet capacity and ability to raise capital will remain key valuation differentiators. It may also be the first time the relatively young S-REIT sector will see REITs refresh their portfolios through divestments and re-developments in a big way (Cambridge Industrial Trust [NOT RATED] has been leading the pack as it de-leverages its balance sheet). Another price differentiator, in our opinion, will be the manager’s skill in optimizing yield through asset works: CMT and FCT, for instance, have a proven track record in this area in our view.
Volatility in the near term. Year-to-date performance of the S-REIT index is slightly negative (-0.7%) at 613.58 points. The recent volatility in the market has led to ~100 basis point movements in yields – we think this volatility will continue as macro-economic concerns, this time in Europe, take a front seat again. In our view, investors may consequently ascribe a higher risk premium (that is, higher yields and lower price-to-book ratios) to the S-REIT sector in the near-term. Nonetheless, we see selective opportunities to pick up strong REITs at attractive valuations (on a longer time horizon), after careful scrutiny of return versus risk. In an uncertain environment, we prefer REITs with a strong earnings outlook and strong balance sheets. We tilt slightly defensive in our top picks and favor FCT, MLT and ART with estimated total returns of 19%, 19.8%, and 21.7% respectively. Downgrade broader sector to NEUTRAL on a more cautious view.
CMT – DB
DB Access Asia Conference 2010 Highlights
Improving operating environment; positive outlook. The operating environment for retail has improved amid the strong economic recovery, translating to a 0.9% YoY rise in shopper traffic and 5% increase in gross turnover. Rental renewal rates in 1Q rose 6.2% over preceding rents (vs 3.4% in 4Q09 and 2.3% in 3Q09). More trade categories are doing better, with 9 out of 18 trade categories reporting a YoY rise in gross turnover compared to just 4 in 2009. Mgmt expects CMT to benefit further from the growing trend in tourist arrivals.
Focus on capital management. CMT has been proactive in capital mgmt and is looking to extend and stagger its debt maturity. It has already addressed debt refinancing for 2010 partially through the recent issue of 5-year and 7-year MTNs (S$200m). In April it issued US$500m 5-year MTNs which will fully meet the balance of 2010 refinancing requirements and the acquisition of Clarke Quay. Pro-forma gearing of 34.7% remains conservative.
AEI and acquisition growth engine reignited. Ongoing AEIs are on track with 70% of new NLA in B1 & B2 Raffles City already committed ahead of its completion end this year. For JEC, construction contract has been awarded below initial budget on track for completion in early 2012. CMT is also constructing a new 2-storey F&B annex block in Junction 8 (3,500sf) and will reconfigure some retail units in Tampines Mall, expected to be completed by end this year. The acquisition of Clarke Quay has also been approved, allowing CMT to leverage on the rising trend in discretionary spending with % of revenue from discretionary spending rising from 20.9% t0 25.1%. Gross revenue locked in for FY10 has exceeded 88% of FY09’s.