CMT – DBSV
Expect a better second half
At a Glance
• FY11 DPU was 3% below our estimates, after a $5.1m income retention
• Completion of JCUbe and positive rental reversion to offset lower occupancies
• AEI works at Clarke Quay to yield 13% ROI
• Maintain BUY at a lower TP of S$2.05
Comment on Results
Full year DPU is 97% of our forecast. 4Q11 gross revenue rose by 4.3% y-o-y to S$157m. However, a faster increase in opex by 18.5% y-o-y dragged NPI by 2.6% to $98.8m. DPU was 2.3cts after $5.1m was retained. Operationally, the trust renewed 503 leases in FY11 with a positive rental reversion of 6.4% y-o-y on the back of 6.3% increase in tenant sales. However, occupancy fell 1.2 ppts q-o-q to 94.8% due to malls undergoing AEI.
Still a positive rental reversion picture, tapping into more low hanging fruits. Going forward, the trust will enjoy positive reversion, as 26.5% of the leases are due for renewal this year. Most of these leases were signed during the 2009 GFC. In addition JCube is on track to open its doors in 2Q12. Pre-commitments have reached >90%. This should mitigate further downside in occupancies (before picking up in 2H12) as the AEI works intensifies at The Atrium and Iluma. Meanwhile, the trust has announced AEI at Clarke Quay at a worth $15.6m, which will generate a decent 13% ROI. The AEI will commence in 2Q12, to be completed within a quarter.
Gearing at 38.4%, balance sheet remains strong. With S$145.8m revaluation surplus largely from a 15bps cap rate compression, net gearing ratio remained at 38.4%. Funding for the remaining AEI works including project financing for its development project at Westgate have been secured.
Recommendation
Maintain BUY, expect better 2H. We have cut our FY12/13 DPU by 6- 9% to 9.8cts/10.5cts to reflect the frictional vacancies during the upgrading works at its malls. As a result, our TP is cut by 1.5% to $2.05. We continue to like the retail sector and CMT as a market leader in this space is well positioned to weather any economic slowdown.
CLT – BT
Cache Logistics reports 8.5% jump in Q4 DPU
Distributable income up 9.2% for the quarter, boosted by acquisitions
CACHE Logistics Trust posted a fourth-quarter distribution per unit (DPU) of 2.10 cents, up 8.5 per cent from the previous corresponding period’s 1.94 cents.
Boosted by accretive acquisitions completed last year, the logistics real estate investment trust’s distributable income for the three months ended Dec 31, 2011, came in 9.2 per cent higher at $13.4 million, compared with $12.3 million a year back.
Increased revenue contributions from the acquisition of investment properties since March last year also pushed net property income (NPI) up 11.8 per cent year-on-year to $16.05 million for the final quarter.
On a full-year basis, the NPI and distributable income rose 49.7 per cent and 48.1 per cent to $61.9 million and $52.5 million respectively, from $41.4 million and $35.4 million for the period Feb 11 (date of constitution of the trust) to Dec 31, 2010.
Cache officially commenced operations on April 12, 2010, which is also its listing date.
Full-year DPU was 8.24 cents, giving an annualised yield of 8.7 per cent based on Cache’s closing price of 95 cents as at Dec 31, 2011.
As at the end of 2011, all of the warehouses in Cache’s portfolio continue to be fully tenanted, with a weighted average lease to expiry of 4.6 years.
Gearing remains a healthy 29.6 per cent, leaving more than sufficient debt headroom for future acquisitions.
As at Dec 31, Cache’s total portfolio of investment properties was valued at $842.8 million.
On when the Reit would hit a portfolio size of $1 billion, Daniel Cerf, chief executive officer of ARA-CWT Trust Management (Cache), the manager of Cache, remained tight-lipped, but said he would rather it be ‘sooner than later’ as ‘size does matter’.
However, with the increasing prevalence of bearish takes on the industrial segment, Mr Cerf would prefer to be ‘cautiously optimistic’ going forward.
On the acquisition front, Mr Cerf highlighted that the Reit will continue to seek attractive growth opportunities in the Asia-Pacific, in particular in Singapore and China.
‘Pockets of opportunities remain and we believe that with sound prudent asset and capital management practices, we are well positioned to achieve sustainable, yield-accretive returns going forward,’ said Mr Cerf.
In the longer term, he remains confident that the Reit would be able to ride through the influx of warehousing space in late 2013 and 2014, as most of Cache’s master leases are up for renewal only in 2015.
Yesterday, the industrial trust closed half a cent higher at 99 cents.
CMT – BT
CMT’s Q4 DPU falls 2.5% to 2.3 cents
It posts distributable income of $75.5m, little changed from the year before
CAPITAMALL Trust (CMT) rounded up the financial year with a slight uptick in distributable income in its final three months, even as distribution per unit (DPU) fell 2.5 per cent to 2.3 cents.
CMT posted a distributable income of $75.5 million for the October to December period, little changed from $75.4 million the year before. DPU was 2.3 cents for the fourth quarter.
Unitholders can expect to receive distribution of 1.28 cents per unit for the period Nov 10 to Dec 31 on Feb 29. An advanced distribution of 1.02 cents per unit was paid on Jan 6.
For the full year, distributable income rose 2.3 per cent to $301.6 million. DPU was 9.37 cents – a yield of 5.35 per cent based on CMT’s closing price of $1.75 per unit on Jan 17 – against 9.24 cents a year ago.
FY2011’s performance was attributable to contributions from Clarke Quay and Iluma, as well as rental increases from new leases and renewal of existing leases, said CMT.
Gross revenue for the quarter rose 4.3 per cent year-on-year to $157.9 million. Iluma accounted for a $3.3 million increase in gross revenue, while the other malls contributed an increase of $3.2 million.
Said James Koh Cher Siang, chairman of CapitaMall Trust Management Limited (CMTML), the manager of CMT: ‘We renewed 503 leases with a positive rental reversion of 6.4 per cent, and achieved a 6.3 per cent year-on-year increase in tenant sales.’
High occupancy rates were generally maintained at CMT’s malls, apart from The Atrium@Orchard and Iluma, which clocked in 65.5 per cent and 53.3 per cent occupancy rates respectively, due to existing asset enhancement work. CMT portfolio’s overall occupancy rate as at end-2011 was 94.8 per cent.
CMT also said its asset-enhancement initiative (AEI) at Clarke Quay will start in Q2 this year. CMT intends to recover space from its existing anchor tenant to optimise the use of Block C and refresh the tenant mix; about 60 per cent of the new speciality area has already been committed.
Post-AEI, average rent is expected to increase from $3.80 psf per month to $6.87 psf per month.
The projected capital expenditure for this initiative is $15.6 million, with an expected return on investment of 13 per cent. Incremental net property income from this property is expected to be $2.02 million, when works are completed in 3Q 2012.
Other AEIs in progress include JCube, The Atrium@Orchard, and Illuma. To date, over 90 per cent of NLA at JCube has been committed; the mall is expected to open in the first quarter of 2012.
Atrium@Orchard and Iluma are on track to be completed by end-2012 and June, respectively.
Steps are also being taken to reposition Sembawang Shopping Centre, (SSC) said Simon Ho, chief executive of CMTML.
‘We’re not shy to adjust. If things don’t go right, we adjust. I think SSC would be a case in point,’ he said. ‘We’re bringing in some educational tenants as well because we see an opportunity … (These tenants include) Adam Khoo and Kent Ridge tuition centre. That will strengthen the overall trade mix in the mall itself,’ he said.
A separate area of concern is property operating expenses, which rose 18.5 per cent year-on-year to $59.1 million in Q4. Steps to mitigate this include the the replacement of chillers in IMM and Tampines Mall.
CMT said it expects utility savings from properties including Lot 1, Junction 8, and Rivervale Mall from Q2 onwards, although the full impact of the savings will only take effect from 2013.
CMT said its strong foundation would enable it to ride out potential economic uncertainties, partly because of the defensiveness of its portfolio, which is underpinned by predominantly necessity shopping malls, and rental upside from ongoing AEIs, which will be realised progressively over the next two years.
Westgate, a new mixed development in Jurong, had its groundbreaking earlier this month. Its target completion date is end-2013.
CMT’s counter ended yesterday down half a cent at $1.745.
A-REIT – CIMB
Stable performance
Rental renewals in the quarter rose strongly relative to the last renewal period even though new take-up is slowing. We anticipate resilient yields helped by limited lease renewals in the coming year and boosted rents after asset enhancement.
3Q12/YTD DPU forms 25% and 74% of our full-year estimate. The results are slightly ahead of consensus. We raise our DPU and DDM-based TP (disc rate: 8.6%) to account for acquisitions announced in Dec 11. Maintain OUTPERFORM on portfolio resilience.
Renewal rates strong, though new take-up was slow
Rental renewals rose strongly (compared to the last renewal period, typically three years ago) by 5.7-28.4%, led by the logistics segment (which was 18% below market rents). However, new take-up slowed to 0.5-3.6% for the three sectors. Occupancy at multi-tenanted properties dipped to 92.4% from 93.0% in 2Q12 while portfolio occupancy moderated from 96.4% to 95.9%. This was attributed to the acquisition of Corporation Place, which had a low occupancy rate (79.6%) and the commencement of refurbishment work at 9 Changi South Street 3, which affected occupancy.
Asset enhancement
Phase 1 refurbishment of 10 Toh Guan Road has been completed. About 57% of the additional 87,000sf space created has been pre-committed, resulting in an estimated 12% ROI for Phase 1 investment. We estimate gross rents of S$4psf for this space. Separately, the manager is adding space to 9 Changi South Street 3.
Accounting for Dec acquisitions
We account for the acquisitions of Corporation Place and 3 Changi Business Park Vista totalling S$179m, assuming full contributions in FY13. We anticipate DPU accretion of 0.1ct (less than 1%) at 88% occupancy.
K-REIT – CIMB
Digesting OFC
With the beginning of job cuts and upcoming office supply, we think it’s too early to turn positive on K-REIT. Though nowhere near breaching loan covenants, risks of cash calls are fairly high, given its high aggregate leverage.
4Q11/FY11 reported DPU is broadly in line with consensus and our estimates, at 19/95% of our FY11. We fine-tune our DPU estimates but keep our DDM-based TP (disc rate: 9.6%). Maintain Underperform.
Office headwinds
4Q11 DPU was down 18% yoy and 29% qoq as contributions from Ocean Financial Centre (OFC) were overwhelmed by higher interest costs and an enlarged unit base after its rights issue. The dip should be temporary given only two weeks of contribution from OFC vs. full unit-base expansion. While a new tenant has been secured for OFC (taking occupancy to 85% from 80%) and remaining lease expiries are limited in FY12, occupancy was flat at Prudential Tower (94%) and 77 King Street (88%) from 3Q.
Delayed impact
We reckon that the impact of an office slowdown could have been delayed, as businesses slow towards year-end and with job cuts only starting to kick in. Management has yet to note major signs of tenant distress, with asking rents still quite stable. So far, one tenant at MBFC 1 has raised the topic of subletting though it has yet to go ahead with the proposal.
Aggregate leverage at 42%
While management is comfortable with current leverage, we remain concerned about the potential of office asset devaluations. K-REIT’s assets are pegged to levels in Oct 11 when OFC was being acquired, implying downside risks. We foresee a cash call for Marina Bay Financial Centre Phase 2 though this could be pushed back on concerns of corporate governance after the OFC acquisition.