Category: CMT
CMT – OCBC
Positive retail sales data eases concerns
Retail sales of small-ticket items picking up. While sales of big-ticket items such as motor vehicle remained weak, sales of small-ticket items have been picking up since March. According to the latest data from Singstat, the seasonally-adjusted retail sales excluding motor vehicles rose by 1.1% MoM in April. This was the second consecutive month of rising retail sales, following the 3.3% MoM increase in March.
More positive data from GSS. According to data from MasterCard, spending by local MasterCard holders during the first weekend (May 29 to 31) of the Great Singapore Sale (GSS) had increased by 7% YoY to US$26.3m. Including spending by tourists, sales increased by a smaller 1% YoY to US$37.5m and this was due to lower tourist arrivals. Nevertheless, spending by locals still represents a higher proportion of the retail spending and the improvement in spending sends a positive signal that consumer sentiment continues to improve after hitting a low in February.
Easing pressure on retailers and landlords. Even though the economic outlook remains uncertain, we believe that the initial stage of fear among consumers has now passed and small-ticket item spending by local consumers is now picking up, as seen in the recent retail sales data. This momentum has continued into May as supported by data from MasterCard. This bodes well for retailers that had been facing pressures from declining sales and rising operating costs since 2H08. To retail landlords such as CapitaMall Trust (CMT), concerns on tenant eviction and rising tenant turnover would also ease.
No catalyst in sight yet; maintain HOLD. While we believe that the worst could be over for the retail industry, we expect the recovery in consumer spending to be gradual as consumers are likely to stay cautious in light of the uncertain economic outlook. As such, we maintain our forecast of a 10% decline in rent for FY09 and a 5% decline in rent for FY10. Our RNAV estimate remains at S$1.36 per unit. We also expect mid-year revaluation of the retail malls to remain stable. After the Rights issue, its gearing level will decline to 29.1% after the repayment of borrowings and we estimate that CMT’s asset portfolio can tolerate up to an 18% decline in valuation before it reaches the upper bound of its comfortable leverage target of 30%-35%. Our fair value of CMT remains at S$1.21 and we maintain our HOLD rating.
REITs – JPM
More fund raisings to come?
• Starhill Global REIT (SGREIT SP; NR) to raise equity. SGREIT announced that it proposes to raise S$337million through 1-for-1 rights issue at S$0.35 per rights unit. The fund raising will be fully underwritten with YTL Corporation committing to up to 75% of the total number of rights unit. Proceeds from the rights issue, according to management, will be used to pare down some of its existing debt, and to capitalise on AEI and acquisition opportunities.
• S$5bn capital raised for the sector, how much more do we need? We estimate that S$5bn capital has been raised from the S-REIT sector with S$2.9bn from equity capital market and S$2.1bn from debt capital market (including debt extension) The sector is currently geared at 31% with interest coverage ratio comfortably at above 4.0x on our estimates, with no more debt refinancing for most of the S-REITs over the next 6 months. That said, we are still looking for about S$1bn equity capital to be raised in the space to convert some of the debt to permanent capital.
• Opportunistic capital raising to come? Despite the substantial amount of equities being raised YTD, J.P. Morgan S-REITs index has increased by 30% since its March low. Share prices for some of the S-MID cap REITs have more than doubled from the trough, which in our view could help to propel management’s decision on potential opportunistic equity capital raisings. In addition, the ever closing gap between the listed and public real estate could provide trust management with more reasons to further strengthen its balance sheet.
• Our top picks for large-cap S-REITs remain A-REIT and CMT, which we believe would generate more than 15% in total return at this level. Our picks amongst the SMID-cap S-REITs are FCT and AIT.
Link – Tables