Suntec – BT
Suntec City to get $410m makeover
Project set to boost retail space, spruce up exhibition venues
Suntec City is set to undergo a $410 million asset enhancement initiative (AEI) that is set to boost its retail space and spruce up its exhibition venues .
To be completed over four phases, the refurbishment project will comprise $230 million on Suntec City Mall, and $180 million on Suntec Singapore International Convention and Exhibition Centre (Suntec Singapore).
Scheduled to take place between mid-2012 and 2015, retail net lettable area (NLA) is expected to increase by 14.6 per cent, from its current 855,000 sf to 980,000 sf, following the conversion of the first and second floors of the convention centre into retail use.
Post-AEI, Suntec City Mall’s net property income is expected to increase by 33 per cent, or $23 million, representing a 10.1 per cent return on investment for unitholders and an 84 per cent increase in capital value over capital expenditure, based on the current capitalisation rate of 5.5 per cent, said Suntec reit.
Overall, stabilised rents are projected to increase by 25 per cent, the company said.
Yeo See Kiat, chief executive of ARA Trust Management (Suntec) Limited, which manages Suntec Reit, said: ‘We have carefully planned the implementation phases to minimise disruptions to both tenants and visitors. The AEI, when completed, would significantly enhance value to all our stakeholders.’
According to Suntec Reit, phases one and two of the AEI will cost approximately $55 million and $75 million respectively, whereas phase three and four will cost approximately $50 million respectively.
The $230 million capital expenditure will be funded by sale proceeds from the divestment of Chijmes and bank borrowings.
Suntec Reit had announced last month that it was selling Chijmes for $177 million to an entity whose shareholders include Pua Seck Guan’s Perennial Real Estate group and OSIM boss Ron Sim.
‘During the execution of the AEI works, we would use part of the sale proceeds from Chijmes to mitigate the temporary dip in DPU (distribution per unit),’ said Mr Yeo.
Suntec Singapore, of which Suntec Reit holds an effective interest of 60.8 per cent, will fund its capital expenditure of $180 million by its own bank borrowings.
The enhancement exercise is scheduled to start mid-2012 through to 2015, and will feature a diverse and wide range of food and beverage choices, new restaurant concepts, stylish cafes, and new food courts.
Part of the Suntec City Mall rebranding exercise will include bringing in more F&B options, said the company – the new tenant mix will feature 35 per cent F&B outlets; 35 per cent anchor/mini anchor (anchor stores, hyper market, 15-screen cineplex, fitness centre); and 30 per cent specialty retail space (specialty boutiques, fast fashion and accessories, new-to-market concept stores).
Other proposed enhancements include new retail entrances, duplex and anchor stores, a new sky garden featuring alfresco restaurants and watering holes, direct connectivity from the convention centre into the mall, and a dedicated MICE (meetings, incentives, conferences, and exhibitions) entrance with express escalators.
The redesign of Suntec Singapore will also pay particular attention to flexibility, functionality, and convertibility, while integrating a high degree of advanced technology, which includes a two-storey interactive digital wall and a modernised facade.
The convention centre will operate from levels two to seven, with a grand entrance on level three, served by express escalators from the ground level.
CMT – BT
CMT to raise up to $300m
CAPITAMALL Trust (CMT) is looking to raise up to $300 million through a private placement for asset enhancement works and to meet its capital expenditure needs, the retail trust said yesterday.
The $300 million placement includes an upsize option of about $50 million.
CMT, which is a unit of Singapore’s largest property group CapitaLand, will issue up to 167.6 million new units at $1.79-1.85 per unit.
The net proceeds from the private placement will amount to about $245.7 million (assuming the upsize option is not exercised) and $294.9 million (assuming the upsize option is fully exercised), CMT said.
A large chunk – some 90 per cent to 95 per cent – of the net proceeds from the placement exercise will be used to finance capital expenditure and asset enhancement initiatives, including those at on-going projects such as JCube, The Atrium@Orchard and Iluma.
The remaining 5 per cent to 10 per cent of the proceeds will be used for general corporate and working capital purposes.
The offer of new units under the private placement will be made to institutional and other investors.
The new units are expected to be issued on Nov 10.
CMT shed 1.5 cents to $1.875 yesterday before trading was halted at mid-day.
a-iTrust – DBSV
Strong S$ continues to undermine true Performance
At a Glance
• 2Q12 results an improvement but strong S$ erodes performance
• Stronger growth from 2H12
• Maintain BUY, TP adjusted to S$0.98
Comment on Results
2Q12 an improvement, but strong S$ continues to erode performance. Ascendas India Trust’s (a-itrust) operational performance in INR terms remains robust, with topline growing by 17% y-o-y. However, the strong S$-INR, which appreciated 10% since a year ago, led to reported topline growth of only 6% to S$31.4m, mainly from the rental income from their new buildings (Zenith and Voyager) which are still ramping up. Net property income (NPI) of S$18.4m grew by a lower 2% y-o-y, due to an increased portfolio size offset by higher electricity tariff & fuel costs. Distributable income however shrank by 9% y-o-y to S$11.8m, from a stronger S$ and higher interest costs from financing of its development activities, translating to a DPU of 1.54 Scts. Compared to 1Q12, results improved with DPU 3% higher. 1H12 performance formed 45% of our full year forecasts.
Development projects, completion of Hi-Tech City acquisition to underpin a stronger 2H12 performance. While performance fell short of our expectations YTD, we see strong earnings growth potential in the coming quarters with (i) strong take-up at Zenith, Park Square ad Voyager, with YTD occupancies of close to 79-83% but these have yet to fully contribute to earnings as tenants are undergoing fit-outs; and (ii) the expected completion of the acquisition of 2 operating buildings at aVance Business Hub by end of 2011.
Recommendation
BUY with revised TP of S$0.98. We have trimmed our FY12-13 numbers by 4% to 6% and lowered our TP by 7% in view of the stronger S$ and later than expected contribution from its new buildings. While a strong S$ continues to remain a drag on earnings in the near term, a-itrust ‘s has plenty of opportunities to grow, apart from acquisition and development plans already in place. Earnings upside hinges on its execution of acquisition & development pipelines – from both 3rd parties and its sponsor, which we have not factored in.
MCT – CIMB
Awaiting Vivocity contributions
No surprises from 2Qas we await contributions from Vivocity after lease renewals and the completion of AEI at ARC.Almost all its leases due in FY12 have been renewed with good rental reversions. The trend shouldcontinueinto FY13.
2Q12/1H12 DPU is broadly in line with our estimates and consensus, forming 25%/51% of FY11. We fine-tuned our numbers but keep our DDM-based target price (discount rate: 8.6%). Maintain Outperform.
Vivocity’s new lease of life
As its largest asset, an under-rented Vivocity should provide strong impetus for future growth. YTD, management has renewed almost all the retail leases due in FY12 at good rental reversions of 20%. Contributions should flow in after the refurbishment of some units. As the mall is substantially under-rented (estimated passing rents of S$10.10 psf vs. peers’ S$11-14), rental reversions should remain positive next year, particularly with footfall and retail sales expected to benefit from the opening of the MRT Circle Line extension.
More to look forward to
The completion of Alexandra Retail Centre (ARC) should provide another leg up. Over 50% of ARC (by NLA) has been pre-committed, up from over 33% last quarter. Construction is more than 90% completed and ARC is on schedule to open by Dec 11. Rather than going for a soft launch, management is looking at the progressive opening of its outlets. Rental step-up provisions in MLHF’s master lease (10-12%) should provide further uplift by Dec 11.
Mapletree Business City not due for injection yet
Still seeing growth potential from its existing portfolio, management is not looking at an injection of Mapletree Business City in the next six months. This puts to rest any concerns about near-term cash calls for the injection, given asset leverage of 38.5%. Pre-commitments have since climbed to 84-5% with asking rents still fairly stable.
CLT – OCBC
Continues to perform
Good 3Q11 results. Cache Logistics Trust (CLT) delivered an 8.0% YoY growth in 3Q11 DPU to 2.095 S cents, in line with both our and consensus expectations. Together with first-half DPU of 4.038 S cents, 9M11 DPU amounted to 6.133 S cents, or 74.1%/74.8% of our/consensus full-year estimates. The strong performance, we note, was achieved on the back of a 13.5% and 11.4% YoY growth in gross revenue and NPI respectively, as the additional rental income from its recent acquisitions contributed positively to the topline. This also helped to lift its distributable income by 8.6% YoY to S$13.4mn, notwithstanding a 20.9% increase in net financing costs.
Operating metrics showed resilience. As at 30 Sep, the group portfolio remained 100% occupied with a combination of triple-net master leases and multi-tenancy lease structures. The weighted average lease to expiry (WALE) was also relatively high at 4.91 years, as compared to 5.1 years a quarter ago. This provides a high degree of predictability in cash flows and stability in earnings, in our view.
Aggregate leverage at healthy level. While aggregate leverage inched up slightly from 29.1% in 2Q to 30.4%, the overall all-in-financing costs averaged at 3.81%, down from 3.92% in prior quarter due to benefits from its unsecured S$35mn 3.5% fixed-rate notes issued in Aug. Based on its reported debt level, we estimate that CLT still have an available debt headroom of ~S$65mn before it reaches an aggregate leverage limit of 35.0%. This provides the group sufficient ammunition to fund future investment opportunities.
Positive outlook. Management also painted a rather positive outlook on Singapore warehouse market fundamentals, citing CBRE’s 3Q11 industry report that demand for warehouses stabilized during the quarter, with third-party logistics providers, logistics and self-storage companies renewing their leases at higher rents. We understand that the average island-wide monthly gross rents for warehouses rose by 2.9% QoQ to S$1.75 psf for ground floor units and 3.6% QoQ to S$1.45 psf for upper floor units. This supports our view that CLT is relatively well protected from the market downturn and negative rental reversions, even when the leases come due (also aided locked in rental escalation for long leases).
Retain BUY. We continue to like CLT for its defensive nature, attractive FY11F DPU yield of 8.2%, and steady pipeline of assets from sponsor CWT with Right of First Refusal. We are keeping our FY11 estimates largely unchanged as the results were consistent with our expectations. Maintain BUY with S$1.14 fair value.