CMT – DMG
Higher than expected debt cost
2Q11 DP U below expectation by ~6%. CapitaMall Trust (CMT) reported 2Q11 DPU of 2.36S¢ (+3.1% QoQ; +3.1% YoY), equivalent to 23% of our FY11 DPU estimate. Main reason for below expectation DPU was attributable to higher than expected interest expense and debt-related transaction cost which amounted to S$34.6m in 2Q11 (+6.6% QoQ, +5.4% YoY) vs our FY11 interest expense estimate of S$95m. On the other hand, net property income rose 7.7% YoY to S$106m (+0.7% QoQ) mainly due to new contributions from Clarke Quay (acquired in Jul 2010) and Illuma (acquired in Apr 2011), and higher rental rates achieved from new and renewed leases. Following our interest expense revision upwards by ~21%, our FY11-12 DPU are reduced by 7.6-4.7% respectively. Consequently, our TP is lowered to S$1.94, derived based on DDM (COE: 8.0%, terminal growth: 2.0%). Maintain NEUTRAL.
Positive rental reversion continues. CMT continues to enjoy positive rental reversion at 7.8% in 2Q11 (vs 7.5% in 1Q11). Given that ~8.2% of portfolio NLA will be up for renewal in 2H11 (~402k sqft), we believe CMT will be able to reap further benefit from positive rental reversion. However, due to abundant supply coming on stream outside central region estimated at ~3.6m sqft during 2H11- 2015, we expect the rate of growth of spot rents to decline gradually for certain suburban areas. Nonetheless, we expect CMT to benefit from further positive rental reversion on the back of expiring leases in FY12-13 at 33.1-32.8% of total gross rental income for Mar 2011 respectively.
Leasing commitment hit ~80% for JCube; more AEI in the pipeline. Asset enhancement work for JCube is scheduled to be completed by 1Q12. With ~nine months to go, we view the pre-commitment lease of 80% as encouraging. Our current forecast has factored in contribution of JCube in FY12. Once operational, JCube will add another 204k sqft of NLA to CMT’s portfolio (~4.0% of current portfolio). Separately, CMT intends to undertake asset enhancement works on Illuma which will cost ~S$30m. More details on the Illuma AEI work will be revealed later on.
K-REIT – CIMB
Expanding presence in Australia
• DPU in line; maintain NEUTRAL. K-REIT’s 2Q11 DPU of 1.93 S cts met both our and consensus expectations as it came in at 26% of our full-year forecast, taking 1H11 DPU to 49% of forecast. There were no major surprises. K-REIT also announced the A$154m-170m forward purchase of a 50% interest in 8 Chifley Square in Sydney. The acquisition will be structured to provide a steady 6.65% yield. Fully funded by cheap local debt, the acquisition should be DPU-accretive. But there are risks associated with going overseas and with a rise in aggregate leverage to above 40% on a full debt drawdown for the purchase. Factoring in the acquisition, we raise our FY12-13 DPU estimates by 2-5%. But our DDM-based target price is trimmed from S$1.52 to S$1.49 as we raise our cost of equity to 7.5% to factor in higher overseas exposure. We remain NEUTRAL.
• No surprises from 2Q11 results. 2Q11 distributable income rose 20% yoy as higher contributions from its acquisitions in 2010 and early 2011 more than offset the loss in contributions from Keppel Towers and GE Tower which have been disposed of. Distributable income increased 8% on qoq basis.
• Occupancy of local portfolio remains strong. Occupancy remained full for all local office assets except MBFC (97%) and Prudential Tower (98%). Occupancy of 77 King Street also improved to 88% from 72% in the last quarter. The effects of negative reversions were moderate and were compensated by higher occupancies. Management also continues to see good tenant demand for its office assets.
• Australian property purchase. K-REIT announced the forward purchase of 50% interest in the yet-to-be-completed 8 Chifley Square in Sydney, Australia for A$154m-170m (S$203.0m-223.3m). The deal will be structured to provide a steady 6.65% yield. Fully funded by cheap local debt, the acquisition will be DPU-accretive though we are not excited as it offers fairly similar spreads (against the risk-free rate) as local assets. Also, there are increased risks associated with going overseas and with a rise in aggregate leverage climbing to above 40% on full debt drawdown for the acquisition.
KGT – BT
K-Green Trust posts Q2 profit of $4.4m
K-GREEN Trust registered profit after tax of $4.4 million for its second quarter ended June 30.
Profits for H1 were $7.9 million, 16.9 per cent higher than the projected $6.8 million.
Q2 revenue was $25.9 million while revenue for the first six months of the year was $44.1 million, 15.8 per cent higher than the $38.1 million projected for the period.
The higher revenue contributions during the first six months were due to a $4.1 million increase in construction revenue from its Senoko Waste-to-Energy (WTE) Plant, and $1.9 million higher operation and maintenance income.
K-Green Trust is Singapore’s only listed green infrastructure trust and pays distributions from residual cash flow.
K-Green has three assets, namely Tuas design-build-own-operate Plant, Ulu Pandan NEWater Plant, and the Senoko WTE Plant.
K-Green has no external borrowings. Cash generated from K-Green’s operations for its second quarter was $6.9 million while that for H1 was $21.7 million.
After taking into account interest, taxes and working capital, total distribution payable for H1 was $19.7 million.
Distribution per unit (DPU) for H1 was 3.13 cents, in line with the forecast amount in its introductory document.
K-Green is on track to fulfil its forecast 7.82 cents full-year DPU.
Net asset value per unit as at June 30, 2011, was $1.13.
K-Green closed down a cent to $1.065 yesterday.
K-REIT – BT
K-Reit Asia’s distributable income up 19.7% in Q2
It will pay up to A$169.8 million for stake in Sydney office building
K-REIT Asia yesterday reported a higher distributable income for the second quarter and said it is buying a stake in an office building in Australia for A$154.4 million (S$203 million) to A$169.8 million.
For the quarter ended June 30, K-Reit’s property income had actually dropped 22.2 per cent over the year to $18.1 million, largely from the sale of Keppel Towers and GE Tower in December last year. Net property income fell 22.2 per cent to $14.3 million.
However, a larger interest income lifted K-Reit’s earnings. It also benefited from a higher share of results of associated companies. This line item brought in $8.3 million – more than three times the $2.4 million last year – from the inclusion of a one-third interest in Marina Bay Financial Centre Towers 1 & 2 and Marina Bay Link Mall.
Distributable income to unitholders eventually came up to $26.3 million, up 19.7 per cent over the year. Distribution per unit (DPU) rose 17.7 per cent to 1.93 cents. The annualised DPU in Q2 was 7.74 cents. This works out to a distribution yield of 5.8 per cent, based on K-Reit’s closing unit price of $1.33 as at June 30.
For the half-year, K-Reit’s distributable income to unitholders rose 27 per cent from the previous year to $50.5 million, and its DPU surged 25.3 per cent to 3.72 cents.
K-Reit has been actively growing its portfolio and its latest acquisition is a 50 per cent stake in 8 Chifley Square, bought from a unit of Australia-listed Mirvac Group.
8 Chifley Square is a 30-storey premium grade office building in Sydney’s central business district. It is due for completion in the third quarter of 2013 and will have an estimated 205,700 square feet of net lettable area.
K-Reit will pay A$154.4 million to A$169.8 million, depending on what the committed rental rates are when 8 Chifley Square is completed. The seller will also provide a five-year rental guarantee, if the property is not fully leased at pre-agreed rental rates when it is completed.
K-Reit estimates that the acquisition would have generated an incremental DPU of 0.07 cents – a 1.1 per cent accretion on a pro forma basis for financial year 2010.
On the stock market yesterday, K-Reit closed unchanged at $1.33.
A-REIT – BT
A-Reit’s DPU down 5% with more units issued
ASCENDAS Real Estate Investment Trust (A-Reit) has reported a 4.4 per cent year-on-year rise in total amount available for distribution to $65.9 million for its first quarter ended June 30, 2011.
But the industrial Reit’s distribution per unit (DPU) dipped 5 per cent to 3.2 cents, mainly due to an 11.1 per cent increase in the number of units outstanding as a result of new units issued in the first quarter of this financial year. Gross revenue for the quarter ended June 30 grew 5.6 per cent year on year to $119.9 million, contributed mainly by new investments. But operating expenses were higher because of higher utilities cost, resulting in net property income rising just 1.6 per cent to $8.88 million.
The fiscal first quarter saw A-Reit’s occupancy rate rising to 92.5 per cent for its multi-tenanted properties and 96.2 per cent for its portfolio, up from 92.1 per cent and 96 per cent respectively.
‘Positive rental reversion was seen throughout all segments as a result of the improvement in the industrial rental market,’ said Tan Ser Ping, CEO and executive director of A-Reit’s manager Ascendas Funds Management (S) Ltd.
With improving industrial rental market, A-Reit could also benefit from leases that are up for renewal.
For the balance of the financial year ending March 31, 2012, the Reit has 10 per cent of its revenue due for renewal. The majority of these leases have passing rents that are below the existing market rents. Looking ahead, A-Reit expects global growth to moderate and Singapore’s economic outlook to remain positive in the second half of this year.
With its diversified portfolio as well as a good mix of properties with long and short-term leases, A-Reit expects to sustain its current performance.
The Reit will continue to seek investments with good fundamentals and potential asset enhancement opportunities to complement its existing portfolio and to further enhance its footprint in the business space and industrial property arena with the portfolio comprising predominantly Singapore-based assets in the foreseeable future, the Reit’s manager said.
The counter ended trading yesterday down two cents at $2.14.