CMT – CIMB
Cautious consumer spending
CMT’s 1Q14 DPU of 2.6 Sct was in line with expectations at 23% of our and consensus’s full-year estimates. While its portfolio rental reversion of 6.2% suggests that operating metrics remain stable, CMT did report a cautious trend in consumer spending, with shopper traffic and tenant sales down 1.9% and 4.0%, respectively. We think execution on its piecemeal AEIs will increasingly become more important if DPUs are to be sustained. There is also some scope for acquisition growth after the sale of Westgate Office Tower. We tweak our FY14-16 DPU estimates by -1% to 1% and keep our DDM-based (discount rate: 7.5%) target price of S$2.06. Maintain Hold on valuations, with catalysts from accretive acquisitions and upside surprise from AEIs.
Portfolio NPI
CMT’s portfolio gross revenue rose 5.8% yoy in 1Q14, driven by rental reversion of 6.2% yoy (implying c.2% growth in spot rents yoy). Higher occupancy at Plaza Singapura and The Atrium@Orchard and the completion of Phase 1 AEI at IMM Building were the key drivers. However, portfolio NPI growth was lower at 5.5% yoy given higher opex (+7.1% yoy) due to higher property tax at Plaza Singapura, JCube and Tampines Mall. Its 30% stake in the Westgate retail mall (92% occupied) resulted in revenue contribution of S$5.1m.
Slowing tenant sales and shopper traffic
Tenant sales (psf) and shopper traffic declined by 4% and 1.9% yoy, respectively. While CMT’s average tenant occupancy cost of 15.8% as at FY13 is not high compared to its peers, further declines in consumer spending could increasingly limit organic rental growth prospects.
AEI and acquisition growth
CMT plans to embark on 1) AEIs on JCube to reconfigure over 50 retail units and increase F&B offerings, and 2) the next phase of AEI for IMM Building in 2014. Both initiatives should result in higher rents on completion although it is unlikely to significantly lift future DPUs. At an asset leverage of 35.1% (excluding the S$174m proceeds due from the sale of Westgate Office Tower), acquisition growth could be the DPU driver for 2014. We estimate debt headroom of S$470m, assuming 40% asset leverage. Star Vista, a mall owned by its sponsor CMA and valued at S$341m, could be a target.
FCOT – OCBC
Sound underlying performance
- 2QFY14 DPU up 3.0% YoY
- Singapore assets to continue to deliver
- Weakness in AUD may persist
2QFY14 scorecard largely in line
Frasers Commercial Trust (FCOT) reported 2QFY14 gross revenue of S$28.6m, down 3.7% YoY due to a weaker AUD and lower occupancy at Central Park. NPI dropped 5.8% to S$21.7m, further impacted by higher expenses due to painting works undertaken at Caroline Chisholm Centre. On a cash basis, however, NPI would only be marginally lower by 0.5% at S$21.0m. We note that cash flows from the Australian properties were hedged via forwards and AUD-denominated loans. Over the quarter, FCOT also continued to enjoy savings from its convertible perpetual preferred units (CPPU) distribution. As a result, distributable income and DPU rose by 5.6% and 3.0% YoY to S$13.8m and 2.05 S cents, respectively. We deem the results to be largely within view, as 2HFY14 DPU met 46.1%/47.1% of our/consensus full-year DPU forecasts.
Robust leasing activities
Expectedly, China Square Central (CSC) continued to bolster FCOT’s performance, raking up 14.5% growth in NPI amid higher occupancy and rental rates. This has helped to mitigate the softer showing at its Australian properties, which saw a 15.5% fall in NPI. Nevertheless, portfolio occupancy stayed at a high 97.5% (1Q: 97.1%). Leasing activities, particularly in Singapore, also remained robust, as 286,372 sqft or a sizable 12.6% of FCOT’s portfolio NLA, were committed, leased and renewed in the quarter. In addition, rental reversions ranging from 6.4% to 18.2% were achieved for the Singapore properties, reinforcing our view for a firm recovery in the domestic office rental market.
Maintain BUY
Looking ahead, we remain positive on FCOT’s Singapore portfolio, as CSC is expected to continue to benefit from its asset enhancement works and better connectivity with the opening of Telok Ayer MRT station, while Alexandra Technopark is likely to see meaningful rental uplift upon the master lease expiry in Aug. For its Australian assets, we believe the income may continue to suffer from weaker AUD, based on Bloomberg consensus forecasts. As such, we are making minor adjustments to our forecasts to factor in the potential weakness; but there is no change to our fair value of S$1.45. Maintain BUY.
CMT – OCBC
Sustained growth momentum
- 1Q14 DPU up 4.5% YoY
- 6.2% rental reversions achieved
- Continued focus on AEIs
1Q14 results within view
CapitaMall Trust (CMT) reported its 1Q14 results yesterday. NPI grew by 5.3% YoY to S$114.3m, while amount available for distribution to unitholders rose 9.3% to S$102.4m. We note that S$8.0m cash has been retained for distribution in FY14, and S$5.3m income from CapitaRetail China Trust for working capital purposes. As a result, DPU for the quarter came in at 2.57 S cents, 4.5% higher than that achieved in 1Q13. This met 23.4% of both ours and consensus full-year DPU projections.
Healthy operating metrics
The better performance was driven mainly by higher occupancy at Plaza Singapura and Atrium@Orchard, and completion of Phase 1 asset enhancement initiative (AEI) at IMM Building. There was some softness in the portfolio shopper traffic and psf tenant sales, which saw a decline of 1.9% and 4.0% YoY respectively over the quarter. However, leasing activity remained sanguine, with 172 leases or 427,276 sqft NLA renewed at rents 6.2% higher than previously contracted rates. For the rest of 2014, 12.8% of CMT’s gross rental income is due for renewal. Portfolio occupancy as at 31 Mar improved 0.3% QoQ to 98.8%, boosted by Westgate mall which registered 92.0% occupancy versus 85.8% when it commenced operations in Dec 2013 (S$3.3m NPI contribution in 1Q14). Given that Westgate Wonderland has recently opened and Kids Club is targeted to open in 2Q, we believe performance at Westgate is set to improve further.
Maintain BUY
Looking ahead, CMT will continue to focus on executing its AEIs at Bugis Junction and Tampines Mall. In addition, it will also embark on Phase 2 AEI at IMM Building and reconfigure Level 2 of JCube to increase the retail offerings and enhance the shoppers’ experience. We are making minor adjustments to our forecasts except incorporating the FRS111 Joint Arrangements accounting principle into our model. Maintain BUY with unchanged S$2.20 fair value on CMT.
CLT – OCBC
Looking beyond 2014
- 1Q14 DPU at 2.14 S cents
- Renewed one master lease
- Clinched first BTS development
Sturdy results consistent with expectations
Cache Logistics Trust (CACHE) turned in a firm set of 1Q14 results last evening. NPI climbed 8.2% YoY to S$19.6m, whereas distributable income rose 5.5% to S$16.7m. The positive performance was mainly attributable to contribution from acquisition of Precise Two in Apr 2013 and stepped-up rents within the portfolio. DPU for the quarter stood at 2.14 S cents, representing a YoY decline of 4.2%. However, this is expected as the unit base has risen by 10.5% due to the private placement in Mar 2013. 1Q14 DPU, we note, constitutes 24.6% of both ours and consensus full-year distribution forecasts.
Continued focus on lease and capital management
CACHE’s portfolio continued to exhibit strength, with occupancy holding steady at 100% and weighted average lease to expiry healthy at 2.9 years (3.1 years in 4Q13). Further to management guidance in last quarter that it was negotiating with relevant parties for lease renewals, CACHE announced that it has renewed its master lease at Kim Heng warehouse for another two years (only 2% of portfolio GFA left for renewal in 2014). Looking ahead, CACHE will continue to focus its efforts on addressing its lease expiries (34% of GFA expiring in 2015) and refinancing needs (59.9% of total debt expiring in 2015) for the next two years. We view this move positively given that the impending supply of warehouse space is relatively substantial and that the interest costs look set to trend upwards.
BTS development to enhance portfolio profile
As announced last week, CACHE has also secured an agreement with DHL Supply Chain to develop and lease a build-to-suit (BTS) ramp-up warehouse located at Tampines LogisPark. This marks CACHE’s foray into BTS development through collaboration with its sponsor CWT Limited. In our view, the contract will not only provide CACHE with quality recurring income, enhance its lease expiry profile, but also strengthen its market position in modern ramp-up warehouse in Singapore. Aggregate leverage is guided to increase from current 29.1% to 34.8% upon completion in 2H15, still within healthy levels. We maintain BUY with unchanged fair value of S$1.25 on CACHE.
CMT – Maybank Kim Eng
Small boost to revenue
- 1Q14 revenue rose 5.8% YoY to SGD164.7m on AEI completion and positive rental reversion.
- Possible tenant cannibalisation in Jurong East with IMM and JCube seeing QoQ drop in occupancy of 80bps and 70bps.
- Maintain HOLD with DDM-derived TP unchanged at SGD2.05.
Results in line with expectations
CMT reported a 5.8% YoY increase in 1Q14 revenue to SGD164.7m, with DPU rising 4.5% YoY to 2.57 cts. Revenue was boosted by the completion of asset enhancement initiatives (AEIs) at IMM and Bugis Junction last year and a 6.2% positive rental reversion for leases renewed in 1Q14. CMT still has about 12.8% of gross rental income up for renewal for the rest of the year. The all-in-financing cost for 1Q14 averaged 3.5% (4Q13: 3.4%) with debt maturity of four years (4Q13: 3.6 years). Westgate is making good progress with 92% occupancy (4Q13: 85.8%), but we think there may be mild cannibalisation in Jurong East with occupancy at IMM and JCube seeing a QoQ drop of 80bps (98.2%) and 70bps (99.3%), respectively. Portfolio-wise, 1Q14 shopper traffic slipped 1.9% YoY to ~49m while tenant sales shrank 4% YoY to ~SGD86 psf/mth (MBKE estimates). This marked the first decline for shopper traffic since 1Q12 and tenant sales since GFC.
AEIs to provide downside buffer
Apart from the ongoing AEIs at Bugis Junction and Tampines Mall, CMT will embark on phase 2 AEI at IMM to increase the number of stores and sharpen its value-focussed positioning. It will also reconfigure Basement 1 and Level 2 of JCube (due to complete in 2H14) to add more food kiosks and 50 retails units. This move is timely, given that Westgate opened only last December and tenant relocation may be inevitable. CMT has achieved around +6% rental reversions since 2010 and we expect the trend to last another 1-2 years. We think acquisitions (eg, ION Orchard and Star Vista) offer a better chance of “moving the needle”. Maintain HOLD and DDM-derived target price of SGD2.05.