Cambridge – DBSV
A better 2H11 expected
At a Glance
• Steady 2Q11 results
• New properties to underpin earnings growth in 3Q111
• Buy for high yields of 8.9-10.0%. TP of S$0.56 remains unchanged
Comment on Results
A steady 2Q11 results. Cambridge REIT (CREIT) reported a steady set of 2Q11 results with topline increasing 6.6% yoy to S$19.5m and a 4.9% increase in net property income to S$16.9m. The improved performance was largely due to contributions from acquired properties over the past 3 quarters, and rental escalation of certain properties. This more than offset the income vacuum from the divestment of certain assets. Portfolio occupancy remained high at 99% with low arrears of 0.5%. Operational performance on a qoq basis remained stable. While distribution income came in at S$12.3m (+14.0% yoy,+3.5%qoq), DPU of 1.036 Scts is 17% lower yoy owing to a larger unit base.
Portfolio divestment completed; new properties to contribute from 3Q11 onwards. The trust has completed divestment of the remaining 6 strata units at 48 Toh Guan Rd (Enterprise Hub) at 10.8% above valuation. In addition, the recent completion of 4&6 Clementi Loop and 60 Tuas South Street 1 will start to contribute meaningfully in the coming quarter.
Revaluation gains of S$47.8m at half-time. CREIT also reported revaluation gains of S$47.8m (on a like for like basis, after netting off its divestments and new properties acquired), bringing its total portfolio size to S$1.1bn. NAV inched up slightly to S$0.62. Gearing remained steady at 32.7%.
Recommendation
BUY for relatively higher yields of 8.9%-10.0% . CREIT remains attractive for its FY11-12F yield of over 8.9%, higher than S-REIT peers. Our FY11 DPU is adjusted slightly downwards due to later than expected completion of its acquisitions.
Cambridge – DMG
Completed acquisitions to boost 2H11
2Q11 DP U in-line with expectation. Cambridge Industrial Trust (CIT) reported a lower DPU of 1.036S¢ in 2Q11 (-16.3% YoY; +3.5% QoQ) due to enlargement of share base as a result of rights issue undertaken in Apr 2011. Net property income rose 4.9% YoY to S$16.9m (+2.0% QoQ) on the back of higher rental income partially offset by loss of income from divested strata units. Separately, CIT has concluded three acquisitions, which it has announced previously, in Jun- Jul 2011. Hence, we expect CIT’s DPU to pick up in 2H11. However, there remains an acquisition with purchase price of S$41m that is not completed. Given that it is unlikely the outstanding acquisition will be completed in 3Q11, we lowered our FY11DPU estimate by 1.5% to account for the expected completion of the acquisition only in early 4Q11. However, due to half-year rolling forward of our DDM valuation, we raised our TP marginally to S$0.595 (COE: 10.1%, TGR: 1.0%). Maintain BUY.
Newly completed acquisitions to begin contributions in 3Q11. During Jun-Jul 2011, CIT completed three acquisitions which it announced in Oct 2010 and Mar 2011, namely, 4 & 6 Clementi Loop, 60 Tuas South Street 1, and 5 & 7 Gul Street 1. We expect these newly acquired properties to contribute 0.2-0.4S¢ in DPU for FY11-12 respectively.
Currently trading at 6.5% spread to 10-year bond yield. CIT is currently trading at 6.5% spread to 10-year bond yield, which is 194bps above its pre-crisis mean spread of 4.6%, based on FY11 DPU. Key risk to the stock is the concentration of lease expiry in 2013/2014 at >50% of total rental income. Upon 1) smoothing out lease expiry profile, 2) illustrating consistency in securing higher rentals during renewals, and 3) acquiring more good quality, yield accretive assets, we believe CIT will then be able to trade at higher valuation.
Cambridge – BT
CIT’s Q2 distributable income rises 14%
CAMBRIDGE Industrial Trust’s (CIT) distributable income rose 14 per cent to $12.3 million for the second quarter compared to a year ago.
Its distribution per unit (DPU) for the three months to end-June was 1.036 cents, down 16.3 per cent from 1.238 cents in Q2 2010.
Compared to the distribution of 1.001 cents per unit in Q1 this year, its DPU rose 3.5 per cent. The latest distribution will be paid on Aug 25, the trust’s manager said.
Despite an expected slowdown in economic growth in the second half of the year, CIT’s manager said that it expects to be able to deliver ‘a stable and secure income stream to its unitholders by maintaining high occupancy levels of its existing properties and acquiring new properties that enhance CIT’s distributions’.
Revenue for the industrial real estate investment trust climbed 6.6 per cent to $19.5 million in Q2 compared to the same period a year ago, mainly due to higher rental income after the acquisition of five properties from September last year to June this year.
Its net property income – after deducting land rents, fees, taxes and other property expenses – rose 4.9 per cent to $16.9 million, from $16.1 million a year earlier.
Non-property expenses nearly doubled to $14.1 million, from $7.3 million a year ago, due mainly to a sharp rise in borrowing costs from $5.7 million to $12.4 million.
That increase was mainly due to accelerated amortisation of fees and costs related to a $303.1 million syndicated term loan that was refinanced with a new $320 million term loan in June, and break costs associated with the refinancing.
For the first six months of the year, CIT’s distributable income rose 10.7 per cent to $24.2 million, as revenue rose 5.2 per cent to $38.8 million.
The trust had total assets of $1.097 billion at the end of June, up from $1.001 billion at end-2010.
Its portfolio at end-June comprised 45 properties with 657,749 square metres of lettable area, leased to 105 tenants. The total portfolio value was about $1.003 billion. The average occupancy rate for its properties in Q2 was 99.02 per cent, with a weighted average lease to expiry of 3.7 years.
CIT units last traded at 50.5 cents yesterday before the earnings announcement, up half a cent from Monday’s closing price.
CMT – BT
CMT posts higher income for Q2
H1 income also up, due mainly to contributions from Clarke Quay, Iluma
CAPITAMALL Trust (CMT), Singapore’s pioneer real estate investment trust (Reit), posted year-on-year improvements in its second-quarter and first-half 2011 results, riding on contributions from its acquisitions of two malls in the city area – Clarke Quay and Iluma.
The Reit manager also highlighted that its city malls, which include Raffles City (40 per cent owned by CMT) and Clarke Quay, have outperformed its portfolio in terms of improving shopper traffic and tenant sales in the first half of 2011. For instance, H1 2011 saw year-on-year increases in tenant sales of about 12 per cent for Clarke Quay, 7.1 per cent for Raffles City, 14.6 per cent for Bugis Junction and 14 per cent for Funan – outpacing an 8 per cent rise for CMT’s portfolio.
Simon Ho, CEO of CapitaMall Trust Management Limited (CMTML), said: ‘The tourist numbers we are seeing (in Singapore) are flowing into our city malls.’
About 50 per cent of Clarke Quay mall’s visitors are tourists, he added. The mix of suburban to city malls in terms of gross revenue of CMT’s portfolio is 75:25. Mr Ho said the trust is not likely to veer too far from this mix, pointing out that suburban malls tend to be more resilient, whereas city malls have ‘a fair bit of tourist component and with it comes a higher level of volatility’.
CMT completed the acquisition of Clarke Quay on July 1, 2010 and that of Iluma on April 1 this year. Mr Ho also revealed that the trust will invest about $20-30 million improving Junction 8 in Bishan over the next few years.
Works include installing a glass canopy to create a seamless connection to the MRT station and alfresco dining area. ‘This will spruce up the mall and also encourage F&B operators to trade longer hours,’ said Mr Ho.
Over at Iluma, the trust is allowing some early pre-termination of leases to facilitate a revamp of the mall. Proposed enhancement works will include adding an LED screen to Iluma’s distinctive facade. The refurbishment could cost about $30-40 million and the plan is to start before year-end and complete the works next year. CMT hopes to ink leases with major fashion names from Japan, the US and Europe, Mr Ho said.
In Jurong East, the group is pumping in $165 million to redevelop the former Jurong Entertainment Centre site into JCube. About 80 per cent of the space in the new mall has already been committed, ahead of its planned opening in Q1 next year.
Over at Orchard Road, the group is investing $150 million to convert the first three levels of The Atrium @ Orchard to retail space and link it to the next-door Plaza Singapura. A canopy will be built along the open plaza between the two properties and the retail space in the two properties will be integrated under the Plaza Singapura name. The name Atrium may continue to be used for the remaining office floors in the development. Work will be competed by end-2012.
ION Orchard – in which CMT’s sponsor, CapitaMalls Asia, has a 50 per cent stake – has stabilised as an asset for potential acquisition and CMT would be interested in the mall when CMA is ready to sell. Sun Hung Kai owns the remaining 50 per cent in the prime mall, which began trading in 2009.
For Q2 ended June 30, 2011, CMT posted a 3.1 per cent year-on-year rise in distributable income to unitholders to nearly $75.5 million. Gross revenue rose 12 per cent to $159.6 million. Net property income improved 7.7 per cent to $106.4 million.
For the first-half ended June 30, CMT’s gross revenue rose 11.4 per cent to $313.5 million, while net property income increased 7.9 per cent to nearly $212.1 million.
Distributable income to unitholders increased 2.9 per cent year-on-year to $148.7 million in H1 2011, after retaining $5.1 million of tax-exempt income received in Q1 2011 from CapitaRetail China Trust (CRCT) for the H2 2010 period and $4.4 million of CMT’s Q1 2011 taxable income.
CMT had earlier retained $8.8 million received from CRCT last year and Mr Ho yesterday gave a firm commitment that CMT will distribute 100 per cent of its FY 2011 taxable income.
Besides the contributions from the two new acquisitions – Clarke Quay and Iluma – CMT’s results also received a fillip from higher rental rates achieved from new and renewed leases and staggered rentals.
A total 269 leases were renewed in H1 2011 at rental rates that on average were 7.8 per cent higher than preceding rates, typically committed three years earlier.
CMT is making a payout of 2.36 cents per unit to unitholders for Q2, translating to an annualised distribution yield of 4.89 per cent based on CMT’s $1.935 closing price yesterday.
CMT’s gearing ratio stood at 39.5 per cent as at end-June 2011, up from 35.9 per cent at end-December 2010. Net asset value per unit (excluding distributable income) stood at $1.55 at end-June 2011, or 2 cents higher from $1.53 at end-December 2010.
With its refinancing of debt due in 2011 completed, CMT does not have any more debt maturing until October 2012.
K-REIT – DBSV
Growing its Australian portfolio
• 2Q DPU of 1.93cts in line with expectation
• Forward purchase of 8 Chifley Square Sydney will grow DPU by 0.9%/3.4% in FY 11/12
• Maintain Hold and DCF-based TP of $1.32
In line with expectations. 2Q gross revenue and NPI declined by 22.2% to S$18.1m and S$14.3m respectively due to the sale of KTGE Towers but remained relatively stable qoq. The 250% increase in associates’ contribution (one-third stake in MBFC phase 1) lifted distributable income to $26.3m (+19.7%), translating to a DPU of 1.93cts. Operationally, portfolio occupancy remained fairly robust at 98% with Marina Bay Link Mall’s occupancy rising from 87% to 95%.
Forward purchase of 8 Chifley Square, Sydney. Meanwhile, K-reit announced the acquisition of a 50% stake in 8 Chifley Square from Mirvac Group. The prime Grade A office building with NLA of 205,700 sf within Sydney’s prime CBD area, will be completed in 2013. The estimated acquisition price is set at a min of A$154 m to a max of A$169m (S$203m – S$223.3m) based on a 6.65% net yield pegged to a net base rent of A$1,050 psm p.a. The purchase consideration, fully funded by debt at a cost of SOR + 50bps, will be paid in 9 tranches till completion. K-reit is expected to make its down payment of AUD S$ 24.5m (S$32.2m) soon. The subsequent 7 tranches of A$16.3m (cS$21.5 m) will be made on a quarterly basis, commencing on 1 Jan’12. The final payment, upon completion, will be subjected to the actual NPI of the building to incentivise the vendor to maximize operational performance. Meanwhile, the reit will also received income upon each payment.
Downside protection structure. The vendor has undertaken to top up any shortfall for a period of 5 years to the agreed 6.65% yield. We understand that management is currently in talks with 2 major tenants to take-up 70% to 80% of space.
Maintain Hold at an unchanged TP of S$1.32. While the acquisition will benefit K-Reit in the longer term and improve the portfolio quality, initial impact on earnings and valuation is limited in our view. FY11/FY12 DPU accretion from this purchase is estimated at 0.9% to 3.4%, while DCF-backed TP remains unchanged at $1.32. Gearing is estimated to increase to c.42% post-acquisition.