Category: CRCT
CRCT – JPM
Portfolio still a work-in-progress
• FY09 results in line. CRCT announced FY09 DPU of S$0.0814/unit after retaining 1.1% of income, annualizing 6.8% yield and is in line with J.P. Morgan and consensus estimates, thanks to effective cost cutting and lower interest expense. Portfolio was revalued up in RMB terms by 1.2% to RMB5.7bn, 6.3% passing yield. Stock will trade ex-2H09 DPU of S$0.0406/unit on 8th March.
• Shift in leasing strategy. Management indicated that the negative rental reversion for 2H09 is partly due to the trust’s strategic move towards a lower base rent but a higher turnover component lease structure. Total gross revenue did increase 2.9% Y/Y on a SSS basis. The new lease structure, in our view, would allow the trust to be more competitive in rent negotiations, but introduced a lot more volatility in earnings. We also estimate that overall rental will increase only if the revise GTO rent component equals to previous base rent.
• Still a work-in-progress portfolio. With management still trying out different lease structures and also different tenant mix, we see CRCT’s portfolio still a work in progress. The operating performance is likely to be unexciting for the next 2 quarters in our view. Therefore, we have revised our FY10E – FY12E DPU estimates down by 3-5%. In addition, given management is unlikely to acquire assets from CMA, we have retained our long-term growth rate at a lower level of 3%.
• We retain our Neutral rating, but reduce our Dec-10 DDM based price target to S$1.25/unit as we lower our earnings estimates. Key risks to our rating and price target include surprises on operating fundamentals both on the upside or downside; and the uncertain timing of the introduction of China REIT code, which is likely to support or even lift up the valuation of the trust.
CRCT – DBS
Steady retail revenues
At a Glance
• 4Q09 DPU of 2.04 Scts in line
• Balance sheet metrics stable, gearing at 33.6%
• c26% of its FY09 revenue base up for renewal in FY10
• Maintain HOLD, TP adjusted to S$1.22.
Comment on Results
4Q DPU of 2.04 Scts in line. CRCT 4Q09 results were in line with our expectations. Gross revenues and net property income were 5.3% and 0.8% lower yoy at S$29.6m and S$20.3m respectively. The weaker performance was mainly due to weaker RMB and S$, tenant remixing activities at Wangjing mall coupled with lower performance from Saihan Mall as its AEI activities are still underway. Income available for distribution grew a marginal 1.3% to S$12.9m.
Book NAV of S$1.04. The trust also revalued up its book value by 1.2%, gearing levels remained the same at 33.6%, interest cover is high at 8.0x.
Performance should remain stable in 2010. While occupancy levels remained relatively stable at 95%, rental reversions at Wangjing (-4.9%) and Xizhimen (-3.3%) continued to be negative in 4Q09 due to tenant remixing but declines narrowed when compared to a year ago. Performance was somewhat offset by stronger performance at Xinwu Mall (+61.9%). Looking ahead, CRCT will be (i) renewing 23.5% of its space in FY10F; of which the majority will be from Xizhimen, Saihan and Wangjing malls.
Recommendation
Maintain HOLD, TP S1.22 based on DCF. While we like CRCT for exposure into China’s consumption and urbanization story in the longer term, we see limited upside to our target price at current levels. Our TP is adjusted upwards as we roll forward our numbers.
CRCT – BT
CRCT posts 10% fall in Q4 DPU to 2.04 cents
But its FY09 income to be distributed climbs 10% on higher revenue from most of its malls
CapitaRetail China Trust (CRCT) yesterday reported a 10 per cent fall in income to be distributed in fourth quarter 2009 to $12.7 million from $14.1 million a year ago as rental revenue fell.
The trust, which gets its income from rents from eight retail properties in China, said that distribution per unit (DPU) likewise fell 10 per cent to 2.04 cents from 2.27 cents.
In Q4 2009, gross revenue was $29.7 million, down 5 per cent from a year ago due to frictional losses at Wangjing Mall when new tenants were introduced to improve mall positioning, as well as lower revenue from Saihan Mall.
The trust is upbeat on future prospects. Chief executive Wee Hui Kan said that the trust’s first-tier city malls are stable and greater contributions are also being seen from other malls.
‘I think we can certainly expect some growth (from CRCT in 2010) as China is growing,’ said Mr Wee. The trust will see organic growth on back of rising retail sales in China. In addition, it is looking for suitable acquisition opportunities, he added.
Mr Wee also said that the trust will continue to strengthen its business model to drive operational performance and improve results.
For the full 2009 financial year, CRCT reported a 10 per cent climb income to be distributed to $50.6 million, from $45.9 million in 2008, on improved revenue from most of its malls.
For FY2009, CRCT retained $0.55 million of the income available for distribution for working capital and capital expenditure.
DPU for the full year rose to 8.14 cents from 7.53 cents.
As at end-2009, CRCT’s total borrowing was $406.4 million while gearing stood at 33.6 per cent. The trust has successfully refinanced a $88 million loan facility which is maturing on Feb 5 this year. CRCT’s next major debt will mature in November and discussions with financial institutions have commenced. The trust is confident that it will refinance the debt when it matures, it said.
CRCT shares lost 4 cents or 3 per cent to close at $1.20 yesterday.
CMT, CRCT – BT
Trump card for CapitaLand in CMA
CAPITALAND’S third-quarter report card released this week was a marked improvement from its showing in the first two quarters of this year. Still, the $167.2 million net profit that it achieved for the first nine months of this year is a far cry from the $1.18 billion in the same period last year.
However, plans to float a stake in its integrated shopping centre business under CapitaMalls Asia (CMA) by the year-end could add handsomely to CapitaLand’s fourth-quarter and full-year bottom lines.
CMA has a net asset value of $5.3 billion but assuming that its assets are valued at 1.5 to two times book value during the initial public offering (IPO), the total market worth of CMA would be about $8-10 billion. If CapitaLand floats a stake of 30 per cent, the pre-tax profit that it stands to book from the IPO could be in the order of $800 million to $1.4 billion.
CapitaLand’s management has indicated that the board may consider recommending a special dividend to shareholders following CMA’s flotation.
UBS Investment Research, in a recent paper, estimates that assuming an $8 billion valuation for CMA and a 30 per cent free float, the special dividend would work out to 27 cents per CapitaLand share if it decides to pay out 50 per cent of the IPO proceeds, and 54 cents per share assuming a 100 per cent payout.
On a $10 billion valuation for CMA and a 40 per cent free float, the payout could range from 45-90 cents per share.
Since CapitaLand announced its plans earlier this month to float CMA, its share price rallied about 21.5 per cent to a high of $4.46 on Monday, although it has given up much of the gain, ending at $4.15 yesterday.
By UBS’s calculations, an $8-10 billion valuation for CMA will add 61 cents to $1.06 to its revalued net asset value (RNAV) per share for CapitaLand, which it estimates at $4.30 based on CMA’s $5.3 billion book value. By launching an IPO, a higher value will be placed on the CMA business than if it remained as an unlisted part of CapitaLand. Or as CapitaLand’s management has put it, its plans to float CMA will ‘unlock shareholder value by crystallising the value of CapitaLand Group’s integrated shopping mall business’.
CapitaLand shareholders stand to gain by approving the group’s plans to float CMA. No doubt it will also be good for members of its management, whose pay packets should benefit from a stronger bottom line. And not to forget JP Morgan, the sole financial adviser.
However, some CapitaLand shareholders may also hold stakes in CapitaMall Trust (CMT) and CapitaRetail China Trust (CRCT), which many analysts reckon may fare less favourably after CMA is listed.
CMT may face short-term price weakness from asset reallocation to CMA, as UBS says. The process has already begun. CMT’s unit price has slipped from $1.82 before the announcement on CMA to yesterday’s closing price of $1.60.
CMA, with a portfolio of 86 malls in China, Singapore, Malaysia, Japan and India, may be more appealing to investors than CMT – which has a presence only in Singapore. CMA’s free float market cap could rival CMT’s. Still, CMA could find it worthwhile to sell assets, such as its 50 per cent stake in ION Orchard, to CMT given the tax transparency that CMT, as a real estate investment trust (Reit), enjoys in Singapore. In other words, if ION remains in CMA, the income from the mall will be taxed at the corporate tax rate (at the vehicle or CMA level). If however, ION is sold to CMT, the mall’s income will be exempt from payment of corporate tax at the Reit/vehicle level, under the tax flow-through allowed for Singapore Reits.
So CMA will retain an incentive (from the viewpoint of this tax saving at least) to develop, warehouse and sell assets to CMT – pretty much the arrangement that now exists between CapitaLand and CMT.
However, this may not be the case for CRCT. That’s because CRCT does not enjoy tax transparency since its income is derived from the ownership of malls in China, where it has to pay taxes on the income before it can bring it to Singapore.
This being the case, there could be less incentive for CMA to offload its China malls in future to CRCT. In fact, it may diminish or extinguish the raison d’etre of CRCT.
When CapitaLand floated CRCT in December 2006, it had planned to grow its initial $690 million portfolio of seven malls in China to $3 billion by end-2009. So far, it hasn’t been very successful. Today, its portfolio comprises eight malls worth $1.2 billion.
Who knows, CapitaLand could eventually privatise CRCT and let its China malls business sit entirely in CMA. This could provide a nice exit for CRCT shareholders.
These are some questions that CapitaLand shareholders who also own units in CMT and CRCT may ponder as they vote tomorrow on CapitaLand’s plans to float CMA.