Category: CMT
REITs – CIMB
Equity raising: Round 2 on the cards?
• Almost S$4bn of cash calls YTD. Since Jan 09, a number of SREITs have made cash calls amounting close to S$4bn, mostly to pare down maturing debt.
• Equity raising expected to continue, driven by acquisitions… Frasers Centrepoint Trust, PLife REIT, and CapitaMall Trust are most likely to make acquisitions in the next 12 months, in our estimation. We expect FCT and CMT to resort to equity raising as debt headroom is unlikely to be sufficient, in view of the sizeable potential pipeline. CMT could potentially raise more than S$1bn, assuming Sun Hung Kai also divests its 50% stake in Ion Orchard to CMT. In the medium term, we also expect Suntec REIT to acquire Suntec Convention Centre, potentially financed by a cash call.
• … and potential asset devaluation. The recent devaluation of Singapore Land Tower to about S$1,842psf is expected to put pressure on CCT to write down its two key office assets, 6 Battery Road and One George Street, with significantly higher valuations of above S$2,200psf. CCT would need to raise more than S$200m in equity to stay safely within the 40% asset leverage level if asset values fall by more than 20%.
• Mid-sized REITs preferred; PLife has lease risk of equity raising. We prefer mid-sized REITs with strong balance sheets such as FCT and PLife REIT. However, our top pick in the SREIT space for potential near-term acquisitions with the least risk of equity raising would be PLife REIT, as debt headroom of more than S$300m remains sizeable. Our target price of S$1.31 and forward yields of 7.2% have yet to account for potential acquisitions.
CMT – DBS
Slowly but steadily
• 2Q09 results within expectation
• Occupancy remains high, slight positive rental reversion
• Maintain Buy with TP $1.68
Still holding ground. CMT reported a 10.4% rise in Q2 revenue to $138.6m while NPI improved 12.2% to $93.8m. Distributable income of $67.9m (DPU 2.13cts) was 15.8% higher than previous period. On a qoq basis, all operating metrics continued to show positive growth of 3%, 1.5% and 8.5% respectively. The group took a $276.2m deficit in the value of its assets, lowering book NAV to $1.56.
Occupancy levels sustained. The better sequential performance was due organic growth with 223728sf of NLA being renewed at rents 1.5% higher than previous levels. Portfolio occupancy remained at a high 99.7%. The growth in bottomline was also aided by lower interest cost at the group repaid loans with the rights proceeds. Outlook is ‘cautiously optimistic’ with a slight 2.2% recovery in pedestrian footfalls. However, tenant sales psf growth remained anemic at this point. Trade sectors that continue to do well were basically necessity shopping. CMT has a remaining 13.9% of GRI to be renewed this year with another 36.5% and 25.7% in FY10 and FY11 and we expect them to be able to recontract these at modest but positive improvement over previous levels.
Maintain Buy. Management’s ability to grow rents despite the challenging conditions while maintaining a high occupancy level underlines its good track record as retail property managers. We have lifted FY09 and FY10 DPU to 8.6cts and 9.1cts on higher portfolio occupancy assumption of 99% vs an earlier 95%. The stock is currently trading at 5.5-5.8% DPU yield and offers a 12% total return.
CMT – CIMB
Meeting expectations
• DPU in line despite S$1.5m retained. 2Q09 results were in line with Street and our expectations. Total income available for distribution was S$67.1m (+17% yoy). However, actual distributed amount was S$67.9m, including S$1.5m of distributable income retained from 2Q09 in view of economic uncertainties; and S$2.3m of net capital distribution income and net tax-exempt income from CRCT retained in 1Q09. Including the S$3.3m retained in 1Q09, management has retained S$4.8m of distributable income for 1H09. It is committed to distributing 100% of its distributable income for the full year. Hence, the S$4.8m retained will represent an additional 0.15cts for distribution in 2H09. 2Q09 DPU of 2.13 cts fell 40% yoy due to an increase in the unit base, forming 25% of our forecast for FY09. 1H09 DPU of 4.25cts, including retained income, represents 49% of our full-year forecast. Net property income of S$93.8m was up 12% yoy on new contributions from Atrium@Orchard and the completion of asset enhancement work in various malls. Qoq, the income was up 1.5% as positive rental reversions were diluted by higher property tax, marketing and maintenance expenses.
• Occupancy stable at 99.7%; reversion rates flat. Portfolio occupancy stayed at 99.7%, the same as 1Q09. Average rentals grew 1.5% over preceding rates (typically committed three years ago), representing annual growth of 0.5%. Although shopper traffic was 2.2% higher than in 2Q08, gross turnover sales of tenants was only 0.2% higher, indicating more care in consumer spending.
• New-to-market brands in Orchard could be prospective tenants. Management says competition in Orchard Road could be viewed positively as new-to-market brands who would first establish themselves in the prime shopping belt could also be persuaded to take root in suburban malls.
• Maintain Underperform and DDM-based target price of S$1.30. For the rest of 2009, we expect CMT’s portfolio occupancy to be nearly full, anchored by its welllocated suburban malls. However, reversions may turn negative as improvements in retail sales still lag behind. Maintain target price S$1.30, still based on DDM valuation (discount rate 9.5%).
CMT – CIMB
Resilient but still expensive
• Maintain Underperform. After our last visit to some of CMT’s malls, we remain confident they can stay resilient despite competition, and our assumptions of 0-5% rental growth for 2009-11 remain realistic. Nonetheless, the impact would likely be offset by capital expenditure on Jurong Entertainment Centre as well as Atrium@Orchard, resulting in flat distribution in the next two years.
• Risks to our estimates include: 1) a poorer-than-expected performance from its centrally located malls and the hotel component in RCS; 2) higher-than-expected construction costs for upcoming asset enhancement works at Jurong Entertainment Centre and Atrium@Orchard; and 3) the creation of a higher-than-expected retail NLA for Atrium @ Orchard.
• DDM-derived target price raised to S$1.30 (from S$1.26). We use a lower discount of 9.5%, down from 9.7% earlier, from a lower risk-free rate of 4.8% applied across our REIT universe. This raises our DDM-derived target price to S$1.30 from S$1.26. Against peers in the SREIT space, CMT appears fairly expensive at 0.8x P/BV and yields of 6% vs. the sector average of 11.3%.