Category: CMT
CMT – CIMB
Mixed signals
• DPU in line; maintain Neutral; target price raised to S$1.93 from S$1.91. 1Q10 results met Street and our expectations. DPU of 2.23cts forms 24% of our full-year estimate. We adjust our assumptions to include S$6.8m of capex for Junction 8 and Tampines Mall and S$700m of Euro-medium-term notes issued this month. Our DPU estimate falls by 2% for 2010 but increases by up to 3% for 2011-12 as contributions from asset enhancement flow in. Our DDM-based target price (discount rate 8.1%) rises to S$1.93 (from S$1.91) as a result. Improving retail sales and an anticipated jump in tourist arrivals this year augur well for CMT. However, in the course of recovery, there could be bouts of volatility particularly for malls in central areas where supply has increased. As a result, maintain Neutral on the stock.
• Opex could rise in 2H10. Available income for distribution was S$80.6m in 1Q10. Some S$9.5m has been retained on the side of caution in view of a record number of leases due for renewal in 2H10 (60% of the total due this year), and an anticipated rise in utility costs with rising oil prices. Nonetheless, management is committed to a 100% payout for the year. If the full S$80.6m were paid out, 1Q10 DPU would have been 2.53cts, or 28% of our full-year forecast.
• Mixed signs for retail sales. Net property income grew 5.7% yoy to S$97.7m, attributed mainly to full contributions from Sembawang Shopping Centre following asset enhancement work in Dec 09, lower interest cost after a repayment of borrowings in 2009 and higher rental rates for new and renewed leases. Average growth rate of lease renewals in 1Q10 was 2% per year, a stark improvement from the average 0.8% in FY09. There were also higher GTO contributions in more trade categories than a year ago. Nonetheless, the improvement was tainted by the closure of Barang Barang in Plaza Singapura due to liquidation. Separately, retention rates in Raffles City were exceptionally low at 20% (vs. a portfolio average of 73.4%) in the quarter due to an active change of tenants.
SREITs – OCBC
1Q10 results preview
In 1Q10, YoY DPU improvements for most... The majority of the S-REIT universe will report 1Q CY10 results over the next two weeks, with CapitaCommercial Trust (CCT) kicking off the season on 16 Apr. Within our coverage universe, we expect Ascott Residence Trust (ART) to show a YoY improvement in DPU on the back of stronger occupancy rates and RevPAU1 . Based on our estimates, Mapletree Logistics Trust and Frasers Centrepoint Trust (FCT) could also see a YoY pick-up in DPU for the quarter due to a boost from recent acquisitions. FCT’s earnings in the preceding year were also impacted by asset works. CapitaMall Trust may also post a YoY increase in DPU as the REIT retained part of its distributable income in 1Q09. We expect Ascendas REIT to report stable operating performance, with this quarter’s DPU up 2.8% YoY.
…but not all. On the other hand, we expect Suntec REIT to report a YoY decline in DPU due primarily to a larger unit base (roughly 1.8b units now versus 1.6b units a year ago). We also estimate that CCT may record a YoY fall in DPU due to dilution from its 2009 rights issue. Meanwhile the Indonesian Rupiah continues to re-rate strongly (6596 IDR/SGD on average in 1Q10 versus 7701 IDR/SGD in 1Q09). The IDR’s ascent over the hedged rate employed by LMIR Trust could impact YoY DPU performance despite a stronger portfolio that has seen steady improvements in occupancy.
Leaping or waiting? Our primary focus this season is on the tone of manager guidance. REIT managers have been fairly aggressive and opportunistic in 2010 so far, with a sizeable S$1,218m worth of acquisitions announced year-to-date. The equity market was also active with FCT’s S$182.2m placement and the listing of Cache Logistics Trust [NOT RATED], whose S$417.3m IPO was 7.8x subscribed. The question is what happens next – market worries about how the second half of this year pans out have been well-documented and the consensus view is for a rather benign economic recovery. How this corresponds to/deviates from REIT managers’ guidance of individual earnings performance will be important to watch. Additionally, the delicate balance between 2H10 uncertainties and market appetite may prompt REIT managers to launch acquisition/fund raising plans sooner rather than later. How managers lay out acquisition and debt re-financing plans will also be worth tracking, in our view. We maintain our OVERWEIGHT stance on the sector. Top picks are ART and Suntec.
CMT – OCBC
Issues US$500m 5-year fixed rate notes
Issues US$500m fixed rate notes. Yesterday, CapitaMall Trust (CMT) announced that it is planning to issue US$500m 5-year fixed rate notes bearing interest rate of 4.321% per annum (payable half-yearly in arrears). The notes are issued under the US$2b Euro-Medium Term Note Programme that was established earlier this week. At the same time, CMT had also entered into swap transactions to swap the US dollar proceeds of US$500m into Singapore dollar proceeds of S$699.5m (exchange rate: S$1.399 to US$1) at a S$ fixed interest rate of 3.794% per annum. Proceeds from the issue will be used to refinance existing borrowings, finance investments, asset enhancement works and for general working capital.
Bigger-than-expected issue, but at competitive financing costs. This fixed rate notes issue is the largest done by CMT in recent years and the size of the issue is bigger than what we have hoped for. In our view, separate notes issues with different loan tenures would have reduced the amount of borrowings maturing in 2015 and thus, make refinancing more manageable going forward. With the new issue, CMT will have borrowings of S$799.5m maturing in 2015, which is 29% of its total borrowings maturing between 2011 and 2017. Nevertheless, we think that the size and pricing of the issue are indicators of strong demand and investor confidence in CMT. With the currency swap, CMT will be paying a lower interest rate of 3.794% per annum, which is reasonable in comparison to the financing costs of its recent medium term notes and also within our expectations.
Sufficient cash for Clarke Quay acquisition and AEIs. For the year to date, CMT has raised S$899.5m though its medium term note programs and with its cash holding of S$350.8m, its current liquidity position is more than sufficient to meet the refinancing of its S$440m of borrowings due in 1H10. We expect CMT to use the remaining cash to finance the acquisition of Clarke Quay (S$268m) and the ongoing asset enhancement initiatives (AEI) at Jurong Entertainment Centre (Budgeted capex: S$200.32m) and Raffles City Basement 2 Link (Budgeted capex: S$33.23m).
Maintain BUY. We are not making any changes to our estimates and we maintain our fair value of S$1.93 on CMT. Total return of 14.6% is attractive, taking into consideration the defensiveness of retail mall assets, its strong management team and visible growth pipeline from pending acquisition and AEIs. We maintain our BUY rating on CMT.
Singapore Retail REITS – Daiwa
The laggard stands out
Summary
- The recovery in retail sales has just started to gain pace, while the rental decline from 2Q08 might soon be over, but we believe expectations of a gradual retail-sector recovery have already been discounted fully.
- We have not changed our preference for using the Daiwa RNG valuation method (a finite-life Gordon Growth model) as our primary tool for valuing Singapore real-estate investment trusts (S-REITs), but we have modified this valuation approach slightly to improve the comparability of its results.
- In contrast to its peers, which we see as fully-valued, we believe Starhill Global is a standout on valuations and distribution-per-unit (DPU) yield, even if we ignore the proposed acquisitions in Malaysia. We maintain our 2 (Outperform) rating for Starhill Global, with an RNG valuation-derived six-month target price of S$0.65.
- We have downgraded our rating for Frasers Centrepoint Trust (FCT) to 3 (Hold) from 2 (Outperform), after lowering our RNG valuation-derived six-month target price to S$1.44 (from S$1.54).
- We maintain our 3 (Hold) rating for CapitaMall Trust (CapitaMall), which looks fully-valued (in our opinion) for a dominant market leader that faces low single-digit-percentage DPU growth (based on our revised DPU forecasts) for FY10 and FY11.
CMT – Daiwa
Time to show off leasing prowess
Dominant, but DPU-growth challenged
• We maintain our 3 (Hold) rating for CapitaMall, which looks fully-valued (in our opinion) for a dominant market leader that faces low single-digit-percentage DPU growth (based on our revised DPU estimates) for FY10 and FY11, and already trades at a premium to its December 2009 NAV of S$1.56.
Clarke Quay acquisition could provide some boost
• We estimate that the acquisition of Clarke Quay (announced on 9 February) from its sponsor, CapitaMalls Asia (CMA SP, S$2.29, 5), would be marginally DPU accretive by about 2%, and any contribution to DPU growth for FY10-11 would help to overcome the sluggish performance of the existing portfolio, where we expect modest rental reversions and subdued contributions from asset-enhancement activities. We expect a big pick-up in DPU growth only in FY12, when the Jurong Entertainment Centre redevelopment comes on stream.
As good a time as any to show off its leasing skills
• One big difference between retail and office leasing is the ability to re-invent space for a brand new or totally different retail concept, and if successful, set higher market-rent benchmarks. We have assumed average overall rental increases (relative to preceding rents) for its lease renewals of 2.5% for FY10 and 3.1% for FY11, but we think it would be an opportune time for the manger to show off what we see as its industry-leading leasing capabilities and surpass our relatively low expectations for rental reversions. Since listing, CapitaMall has achieved average rental increases (over preceding rents) of 7.3-12.6% for FY03-08.