Category: CMT
CMT – Kim Eng
AEI Plans Under Wraps For Now
Tip of the iceberg. CapitaMall Trust (CMT) reported a 4Q12 distributable income of SGD79.8m (+6% YoY; -1% QoQ), for a full-year distributable income of SGD316.9m (+5% YoY). This translates to a 4Q12 DPU of 2.36 cents and FY12 DPU of 9.46 cents, in line with expectations. We expect the recently completed AEIs to contribute more meaningfully in FY13, with a high possibility of announcements on new AEIs to be made in the 1Q13 results. Maintain BUY.
Growth driven by completed AEIs. On a comparable basis, CMT’s FY12 gross revenue inched up by barely 1.0% YoY, tracking its tenants’ sales growth of 1.6% YoY. Revenue and NPI contributions from JCube and Bugis+, two malls that have completed their AEIs in FY12, amounted to SGD44.9m (6.8% of total revenue) and SGD24.5m (5.5% of total NPI) respectively. AEI works at The Atrium@Orchard were completed in end-October, but since opening, the property has attracted 1.2m visitors a month on average.
Not ready to announce new AEIs. Besides looking for yield-accretive acquisitions and greenfield sites possibly from the Government Land Sales programme, management alluded that it is reviewing the options and evaluating the costs of potential AEIs at Funan and Tampines Mall to take advantage of the unused GFA. However, it is not ready to provide more details until the plans are firmed up.
Other works ongoing. For now, CMT’s project pipeline comprises the repositioning of IMM to house up to 50 outlet stores, as well as the construction of Westgate Mall, which is on track to open before Christmas this year. Tenants that have already committed to space at Westgate include Isetan, Food Republic and Fitness First gym. Westgate office tower will be completed around a year later, with the CapitaLand group already announced as an anchor tenant.
Attractive as it is. We raise our DDM-derived target price to SGD2.36, without factoring in the potential AEI works at Funan and Tampines Mall or any yield-accretive acquisitions. With its strong track record of delivering DPU growth via successful AEIs, we maintain our BUY recommendation.
S-REITs – Kim Eng
Go Selective On REITs
Year in Review. The S-REITs has been one of the best performers in 2012 (39% price return in FY12). Last year, we have seen many pension, insurance and income funds switching into REITs to pursue higher returns for the sheer fact that the yield-curve is almost flat. This is further aggravated by the almost “zero-bound yields” which meant that yields have no more room to fall, erasing any prospects of fixed income capital gains for investors. In the quest for returns, many such funds had to turn to slightly riskier asset classes such as REITs, Infrastructure Trusts and Master Limited Partnerships (MLPs) etc for stable recurring distributions.
S-REITs 2013 forecast. In the absence of real sustainable global economic growth, we believe that continuing rounds of QE Infinity, ECB’s unlimited bond-purchase program and BoJ’s yen-asset-purchase program will persist to keep interest rates low and liquidity high. This, in turn, will sustain property prices moving forward. Nonetheless, we DO NOT think that S-REITs will be able to repeat its stellar performance in 2012. In our view, S-REITs will find it challenging to complete yield-accretive acquisitions in 2013, given that property prices in most segments are already past their 2008 peak levels. We also see limited opportunities for further positive rental reversions (3-8% DPU upside per annum) as rentals face more downward pressure in 2013, following looming supply and softening of business sentiments.
Year of consolidation. 2013 is probably a year of consolidation for S-REITs, that will warrant further yield compression of at most 30-40bps, translating to a maximum of 6-8% upside. Given the high price-to-book of S-REITs (1.15x sector-wise), we downgrade S-REITs to NEUTRAL from OVERWEIGHT. For greater upside, we see more prevailing opportunities in developers (especially local high-end and diversified big caps) than landlords. We also see heightened risk of equity fund raising for S-REITs in asset enhancements, redevelopment projects or/and sponsor injections.
Stock picks. Selectively, our TOP picks remain with the more defensible Retail and Industrial REITs, namely Starhill Global (SGREIT SP, BUY, TP SDG0.85), Capitamall Trust (CT SP, BUY, TP SGD2.29) and Ascendas REIT (AREIT SP, BUY, TP SDG2.60), that can expect to benefit from near-term DPU upside with asset enhancements and ongoing redevelopment projects. We will advise investors to shun the more cyclical Office and Hospitality REITs.
CMT – DMG
Raise capital via private placement
Raised S$250m by placing 125m new units. CapitaMall Trust (CMT) just announced that it has successfully placed 125m new units through a private placement at an issue price of S$2.00 per new unit, a discount of 4.8% from the weighted average price of S$2.10, raising gross proceeds of S$250m. The number of shares placed is higher than the previously proposed of 100.5m units due to oversubscription. According to management, 98-99% of the gross proceeds will be primarily used to finance capital expenditure and AEIs of CMT properties, refinance existing debts and working capital. The remaining 1-2% of the gross proceeds will be used to pay for the estimated fees and expenses, including professional fees and expenses incurred in this placement.
Minimal impact on share price. As the new units issued via this placement would constitute only 3.8% of the total share base, we believe this would have minimal impact on the counter’s share price as the hunt for dividend yield plays continues on the back of high liquidity, prolonged low interest rate environment and a strong Singapore currency. Given the slight dilution in DPU, we maintain our BUY rating on CMT with a slightly revised TP to S$2.270.
CMT – CIMB
Opportunistic cash call?
Despite a fairly good placement price(at 1.3x P/BV) with only 4%dilution, we are disappointed that CMT has chosen to raise equity in the absence of major funding needs for acquisitions and AEI. Post-dilution yields are not compelling and we see selling pressure.
Factoring in the placement, we lower our FY13-14 DPU by up to 4%.Coupledwith more moderate growth prospects, we cut our DDM target price (discount rate 6.7%). We believe CY13 4.8% yields are no longer compelling vs. peers. Downgrade from Outperform to Underperform. We prefer MCT and FCT in the retail malls space.
What Happened
CMT has closed a private placement of 125m new units to raise gross proceeds ofS$250m. The issue price of S$2aunit represents a discount of 4.8% to its VWAP of S$2.10. The price translates into 1.3x P/BV. Management intends to use the money to refinance debt and pay for capex and AEI though no new plans have been spelt out.
What We Think
The placement is probably opportunistic given yield compression for the sector and CMT. Despite the good placement price and small dilution of 4% above, we believe its share price could be hit after the placement as the fund-raising was unexpected and not backed by major funding needs for acquisitions and AEI. We are slightly disappointed by management’s decision given that asset leverage is a lower 38% than last Nov’s 40% when it similarly placed out shares. We understand that asset leverage could dip to 35% if proceeds were used for debt repayment.
Management said the placement will provide CMT with greater financial flexibility for AEI. On past occasions, it had shared that it was on the lookout for acquisitions. But we understand that there are no concrete plans for now. Possible targets in the future include Star Vista and/or ION Orchard from CMA, we believe. There remains funding needs of about S$100m for WestGate.
What You Should Do
We revisit our estimates for CMT and relook the attractiveness of forward yields vs. peers. We believe yields are no longer compelling against peers and see some selling pressure.
CMT – DBSV
Work in progress
• In line with expectations
• Atrium AEI works at its tail end, pre-commitment on track; Westgate secures pre-commitments
• Maintain Hold at an unchanged TP of S$2.10
Highlights
Results in line. Gross revenue and NPI grew by 4-5% y-o-y supported by healthy rental reversion, and increased contributions from completed asset enhancement projects offsetting lower contribution from The Atrium and IMM. Reversion rates remained healthy at 6.1% (1Q12 and 1H12: 6.1 -6.4%) supported by high occupancy rate of 98.4%. Meanwhile, another S$5.9m received from CRCT has been retained, bringing YTD receipts to S$11.3m. These are likely to be kept for working capital purposes. Distributable income rose by a marginal 4.5% y-o-y, translating to DPU of 2.42Scts.
Our View
Pre-commitments for the malls on track. Leasing progress for Bugis+ remains healthy at 98.5% as at 3Q12. The AEI works at the Atrium is also coming to a tail end and is expected to open as early as November. Pre-commitment for the retail space has improved from c.71% last quarter to 80%. Meanwhile, the group has also started marketing the retail space at Westgate and has already secured some pre-commitments including Isetan’s c.60,000 sf space (c. 14% of the mall’s space).
Some downtime in occupancy expected. Phase 1 of IMM’s AEI works amounting to c.40,000 sf of space has commenced and is expected to complete by end of the year, while Phase 2 is commencing soon and will complete in April next year. Occupancy has dipped to 95% and we expect it to trough at c.85% in 1Q13. Elsewhere, the space occupied by Carrefour (c. 81,000 sf) at Plaza Singapura will be vacated in November and the reit is looking for a replacement tenant. Hence, occupancy could see some downtime.
Extending its debt maturity profile. Gearing remains healthy at 67.6%. Refinancing for its 2012 loan has also been completed with longer term loans, which would help to extend its debt maturity profile.
Recommendation
Maintain Hold. While we like CMT for its leadership in the retail market sector and the ability to drive positive rental reversion via AEI works, we believe most of the positives have already been priced into the stock. We have nudged down FY12/13 DPU by c.1.5% to account for the lower occupancies with DCF-backed TP unchanged at S$2.10. Upside risk for share price performance of the stock could likely depend on newsflow on potential acquisitions of new properties in the pipeline.