Category: CMT
SREIT – DBS
Facing headwinds
Sector outlook and valuation: The S-reit sector is currently trading at average FY08 yield of 7%, a 360bps spread over the 10-year bond yield and at 0.79x P/book NAV. We believe that much of the rising interest rate expectation and slower economic outlook is likely factored in the current share price. While the sector is likely to continue seeing headwinds from the negative newsflow from the tight credit and sluggish capital markets, valuations are not excessive by historical standards, as yield spreads are trading above their longterm average levels.
Raising cost of capital assumptions. Using higher debt and equity costs have eroded S-reit returns. Even then, Sreits are trading at steep 24% discounts to DCF-backed price projections, which are based on these greater cost of capital assumptions. Essentially, we have lowered our price targets by 19% by increasing our equity discount rates by 107bps. Another issue surrounding the S-reit sector is the relatively short debt expiry profile, estimated at 2.9 years. S-reits have an estimated $5.1b (43% of total) debt to be renewed in the next 12-18 months. However, with more than 75% of total debt on fixed rates or are hedged, the impact of the hike would likely be moderated.
Stock selection is key. Under the present dampened acquisition growth environment, we would be selective in our S-reit picks and would prefer those with strong organic growth potential to drive DPU expansion, such as retail reits as well as those with long lease expiry profiles such as industrial reits. Amongst our top picks are CMT and A-reit. CMT has a multi-pronged growth strategy through organic and asset enhancement activities. A-reit has a relatively long weighted lease expiry profile of 5.5 years that would enable them to have earnings certainty and visibility. There is potential for more rental hikes given that industrial rents have not appreciated significantly from the low. Share price of A-reit had declined 23% since May 08 and is currently offering 7.4- 7.5% FY09 and FY10 yields.
CMT – BT
CMT still keen to acquire; DPU beats forecast
THE current economic landscape could provide rich pickings for some.
Chief executive of CapitaMall Trust (CMT) management Pua Sek Guan noted that when the market is ‘very good’, it is difficult for acquisitions to be made. ‘Today, there are deals to be done,’ he said.
While Mr Pua would not say if CMT was looking at any ‘deal’ in particular, he did say that single asset owners of retail properties may want to ask themselves: ‘Is this your long-term business?’
He said: ‘This business is a skill-set business. You need a platform to innovate.’
Mr Pua was referring to the CMT’s programme of proposed asset enhancement initiatives (AEI) for assets including the Atrium and Plaza Singapura, Lot One Shoppers’ Mall and Bugis Junction.
CMT expects its AEI capital expenditure outlay for 2008 to be about $174 million, up from $168.6 million in 2007. But CMT expects incremental net property income of about $25 million from AEI completed by end-2009.
Mr Pua was speaking at a press conference to announce CMT’s Q2 2008 financial results which saw net property income of $83.6 million, up 24.7 per cent on a year-on-year basis.
Distributable income for the quarter was $58.6 million. This represents an annualised distribution per unit of 14.16 cents, up 13.2 per cent from the previous corresponding quarter.
Distribution per unit (DPU) for the quarter is 3.52 cents, 1.7 per cent higher than CMT’s forecast.
Gross revenue for Q2 was $125.6 million, an increase of $21.7 million or 20.9 per cent. This was attributed to an increase in revenue of $11.1 million from the three malls under CapitaRetail Singapore (CRS), which contributed three months of revenue in Q2 2008, against one month in Q2 2007.
CMT’s other malls accounted for another $7.6 million increase in revenue mainly due to new and renewal leases as well as higher revenue from IMM Building, Plaza Singapura and Bugis Junction. Its interest in Raffles City accounted for another $3.0 million.
CMT, which tracks gross turnover of tenants, said that tenants’ sales growth outpaced the increases in gross rent. Citing Plaza Singapura as an example, it said that sales increased by 5.1 per cent in 2008 over 2007 to hit $97 million, based on a sample size of 143 tenants. Gross rent increased by 2 per cent in the same period.
Still, one casualty appears to be John Little at Plaza Singapura. A spokesman for John Little confirmed that it will close its Plaza Singapura outlet. However, it is understood that the company will take up a smaller space there for a possible new brand.
CMT – UOBKH
2QFY08: Maintaining Double-digit Growth
CapitaMall Trust (CMT) reported gross revenue of S$125.6m in 2QFY08, an increase of 20.9% yoy. Key growth drivers were Tampines Mall, IMM Building and Raffles City, whose revenue contributions grew 12.2%, 16.5% and 18.4% yoy respectively. Overall occupancy was unchanged at 99.9% in Jun 08. Leases for 319,087sf of retail space representing 9.9% of total net lettable area (NLA) were renewed in 1HFY08 at 9.9% over preceding rental rates. CMT announced DPU of 3.52 cents for the quarter, representing an increase of 12.8% yoy and an annualised yield of 4.6%.
Asset enhancement for The Atrium. The Atrium will be amalgamated with Plaza Singapura to create an integrated development with 170m of prime retail frontage along Orchard Road and NLA of 850,000sf combined. Some 215,000sf of additional retail space will be created on levels 1, 2 and 3 of The Atrium by converting unproductive ancillary space and loweryielding office space into retail space. The asset enhancement initiative will cost S$150m and will be carried out in three phases in FY09 and FY10. The enhancement initiative is expected to be completed in Aug 08. It is funded by the issue of S$650m five-year convertible bonds (exercise price: S$4.36) and medium-term notes of S$395m.
Maintain HOLD. CMT provides FY08 distribution yield of 4.9%, a narrow spread of 1.5% over 10-year Singapore government bond yield at 3.4%. Maintain earnings estimates and fair price at S$3.42.
CMT – UOBKH
2Q08: Maintaining double-digit growth
CapitaMall Trust (CMT) reported gross revenue of S$125.6m in 2Q08, an increase of 20.9% yoy. Key growth drivers were Tampines Mall, IMM Building and Raffles City, where revenue contributions grew 12.2%, 16.5% and 18.4% yoy respectively. Overall occupancy was unchanged at 99.9% in Jun 08. 319,087sf of retail space representing 9.9% of total Net Lettable Area (NLA) was renewed in 1H08 at 9.9% over preceding rental rates. CMT announced DPU of 3.52 cents for the quarter, an increase of 12.8% yoy, and represents annualised yield of 4.6%.
Asset enhancement for The Atrium. The Atrium will be amalgamated with Plaza Singapura to create an integrated development with 170m of prime retail frontage along Orchard Road and NLA of 850,000sf combined. 215,000sf of additional retail space will be created on Levels 1, 2 and 3 of The Atrium by converting unproductive ancillary space and lower yielding office space into retail space. The asset enhancement initiative will cost S$150m and will be carried out in three phases in 2009 and 2010.
The acquisition is funded by issue of S$650m 5-year convertible bonds (exercise price: S$4.36) and medium term notes of S$395m. The acquisition is expected to complete in Aug 08.
Revamp malls in Sembawang and Jurong. Sembawang Shopping Centre is being redeveloped by decanting 42,610sf of residential area and shifting more retail space into the high-yielding basement, level 1 and level 2. The new mall with NLA of 128,413sf will be completed in 4Q08. CMT has submitted written permission to increase the plot ratio for Jurong Entertainment Centre from 1.85 to 3.00, almost doubling NLA to 209,700sf. The asset enhancement initiative involves the construction of an Olympic-sized ice skating ring. CMT has applied for the ice skating ring to be considered as being for civic and community uses, which will provide additional floor space of 35,000sf if approved. The asset enhancement initiative is scheduled for completion in 4QFY09. Sembawang Shopping Centre and Jurong Entertainment Centre will provide incremental net property income of S$9.5m and S$12.4m p.a. when the asset enhancement initiatives are completed.
Maintain HOLD. CMT provides FY08 distribution yield of 4.9%, a narrow spread of 1.5% over 10-year Singapore government bond yield at 3.4%. Maintain earnings estimates and fair price at S$3.42.
CMT – CIMB
Smooth sailing
• 1H08 in line; full contributions from CapitaRetail Singapore properties. CMT’s 2Q08 results were in line with Street and our expectations. Reported distributable profit of S$58.6m, representing DPU of 3.52cts, formed 25% of our full-year DPU forecast of 13.9cts. Gross revenue of S$125.6m was up 21% yoy, aided by full contributions from Bukit Panjang Plaza, Lot One Shoppers’ Mall and Rivervale Mall. 1H08 DPU of 7.01cts was also in line with expectations, forming 51% of our estimate.
• Rental renewals and occupancy remained high. 1H08 rental rates increased 9.9% over preceding rates. Assuming an average 3-year lease, the average annual increase was 3.3%. Portfolio occupancy was 99.9% as at 30 Jun.
• Update on asset enhancements. CMT has paid the differential premium and stamp duties of S$65.2m to the URA following approval for the maximisation of unutilised gross floor area of about 386,000 sf at Funan DigitaLife Mall. CMT plans to erect four storeys of office space on top of the existing retail space at Funan. Including the fee for lease top-up to 99 years, CMT estimates the land cost for office development at S$247 psf, significantly below the S$1,010 psf average seen in recent government land sales. CMT is likely to proceed with its maximisation work after securing its anchor tenant(s). We estimate that work could commence in late
2008 or early 2009.
• Maintain Neutral and target price of S$3.64. We remain positive on CMT’s ability to mitigate inflationary effects with the incorporation of step-up rentals and gross turnover (GTO) rents for more than 85% of its retail tenancies. CMT is also expected to sustain the organic growth of its portfolio with continued enhancement work. Nonetheless, we expect the drag on yields from Atrium@Orchard to continue till the full potential of its integration with Plaza Singapura is realised in 2010. Potential contributions from Funan’s office space have not been factored in pending details. We remain Neutral on CMT with an unchanged target price of S$3.64, based on DDM valuation (discount rate 9.7%).