CMT – BT
CMT Q4 distributable income dips
Fall lower than forecast; trust upbeat on future growth
CAPITAMALL Trust (CMT) rounded up the financial year with a 1.4 per cent year-on-year drop in distributable income in its final three months, though the fall was less than forecast.
In an announcement yesterday before the market opened, CMT said that distributable income to unitholders slipped to $75.4 million for the October-December period from $76.5 million before. But the fall was smaller than expected as the forecast distributable income was $73.9 million.
Distribution per unit (DPU) is 2.36 cents, compared with 2.4 cents a year earlier.
Unitholders will receive their payouts on Feb 28.
The DPU translates to an annualised distribution yield of 4.93 per cent based on CMT’s closing price of $1.90 on Jan 19.
A major contributor to the fall was finance expenses, which shot up 29.7 per cent on-year to $30.7 million due to higher interest costs incurred from the issue of fixed rate notes. This eroded a pick-up in gross sales and net property income.
Gross revenue edged 8 per cent higher to $151.3 million as compared with the corresponding period a year earlier, while net property income for Q4 climbed 5.7 per cent to $101.5 million.
CMT closed trading yesterday one cent lower at $1.89.
Said DMG in a research note: ‘While we continue to recognise CMT’s impeccable mall management expertise, and positive outlook on suburban mall rents given recovery in domestic demand and robust tourist arrivals, valuations for the counter appear rich.
‘Without accretive acquisitions, we believe the stock is fully valued.’
It is ‘neutral’ on CMT, and has set a unit price target of $2.
Standard Chartered Equity Research said that it has lowered its DPU expectations for the trust for FY2011.
‘We think CMT’s performance is likely to be capped in the next six months,’ said Standard Chartered.
It has kept its ‘outperform’ call and $2.39 price target on CMT, noting that the trust’s potential acquisitions and greenfield developments ‘can still act as positive surprises’.
Meanwhile, CMT has painted an upbeat picture on future growth.
Simon Ho, chief executive of CMT’s manager CapitaMall Trust Management Ltd, said: ‘We expect CMT to continue to enjoy healthy organic growth through continued positive rental increases … In 2011, we will also continue to focus on acquisitions of yield-accretive properties and selective participation in greenfield development projects.’
The completion of CMT’s asset enhancement works at Raffles City Shopping Centre will allow the trust to reap an incremental annual net property income of about $1.2 million this year, said Mr Ho. CMT has a 40 per cent stake in the mall.
The trust’s portfolio includes Tampines Mall, Funan DigitaLife Mall, Bugis Junction, Rivervale Mall and Plaza Singapura.
Mr Ho added that CMT will kick-start asset enhancement works for The Atrium@Orchard in January 2011.
For the full year, distributable income rose 4.6 per cent to $294.8 million. DPU was 9.24 cents against 8.85 cents a year ago.
Gross revenue increased 5.1 per cent to $581.1 million.
CCT – Kim Eng
Deep pockets, but what’s next?
Event
• CapitaCommercial Trust (CCT) reported an FY10 DPU of 7.8 cents, in line with expectations. Net property income declined marginally by 0.4% to $299m despite a 1.3% fall in gross rental income, due to lower OPEX and property tax. We remain cautious in view of the possible downward pressure on rents when more of the new supply comes on‐stream. Maintain HOLD.
Our View
• CCT’s Grade A office space continues to enjoy full occupancy as of end‐2010, but Six Battery Road suffered a 3% drop in gross revenue due to negative rental reversion. Management alluded that some of its existing tenants require space for expansion, but we remain mindful that nearly half of the new office supply coming on‐stream in 2011 has yet to be committed, which may limit CCT’s pricing power when it comes to seeking new tenants or retaining existing ones.
• After accumulating a warchest of more than $700m from the divestment of Robinson Point and Starhub Centre last year, CCT will pare down $242.6m of debt, saving about $7m of interest expense per year. CCT is exploring various refinancing options for its remaining debt, possibly by taking longer‐maturity loans of five years or more.
• The management intends to hold on to the remaining cash of about $535m for potential acquisitions. CCT has a potential investment capacity of $1.6b at its disposal, assuming a gearing of 40%. However, with other office buildings transacting at cap rates of 4% or less, it remains a challenge for CCT to find attractive acquisitions.
Action & Recommendation
While CCT has done well to maintain occupancy rates for now, it remains to be seen if it will be at the expense of softening rents when more International Grade A space gets completed in 2011 and 2012 (increasing the office stock in the Central region by nearly 3% p.a.). Maintain HOLD with a DDM‐derived target price of $1.25.
CCT – OCBC
All the right moves; poised to benefit from rental Recovery
Estimated 4Q10 DPU of 1.94 S cents. CCT’s 4Q10 gross revenue of S$92.1m dropped 10.8% YoY and 5.8% QoQ. Similarly, NPI fell 11.4% YoY and 7.08% QoQ to S$70.9m. Estimated 4Q10 DPU is 1.94 S cents, which is 3.2% above 4Q09 DPU of 1.88 S cents. The income declines were largely driven by the loss of rental income following the divestments of Robinson Point and Starhub Centre. There were also elements of negative rent reversion, as the expiring leases were contracted during the highs of 2007-2008.
All the right moves. In previous reports, we were concerned that CCT’s excess cash1 on the balance sheet could result in a cash drag, especially in this persistently low interest environment. In light of no further acquisition in sight, we were delighted that CCT had chosen to pare down its debt in 4Q10. It has prepaid its S$142.6m term loan, expiring in Jun 2012, using existing cash balance in Dec and will be repaying another S$100m MTN maturing on 24-Jan 2011. Following this, its gearing will be lowered to 27% from 31.5%. The prepayment has also unencumbered another of its assets (HSBC Building), increasing CCT’s number of unsecured assets to 7 out of 9. We continue to like CCT’s prudent capital management. It is able to maintain financial flexibility by having a large portfolio of unencumbered assets and reasonably low gearing, and yet having the nimbleness to acquisition growth opportunities when these arise. Assuming a gearing of 40%, CCT now has additional debt headroom of S$1.2B, which it can focus on investment opportunities. The challenge, however, lies in sourcing for yield-accretive Grade-A office acquisitions. Capital values of CBD office space have appreciated some 20%-25% YoY, on the back of heated investment sales2 , which some argued were driven by the conversion of office to residential use.
Positive rent reversion after 2011. CCT’s portfolio occupancy improved to 99.3%, from 94.8% a year ago. We were particularly impressed that the manager was able to uplift Wikie Edge’s occupancy from 78.4% in 3Q10 to 98.4% in 4Q10. According to our estimates, Grade A office rents will hit S$10.50 psfpm in 20113, more than S$11 psfpm in 2012 and above S$12 psfpm in 2013. We thus forecast CCT to continue to experience negative rent reversions in 2011 , but this should change in 2012. With its near 100% occupancy and active leasing strategy, CCT is poised to benefit from the rental upside ahead. We thus upgrade CCT’s rating to BUY, with a RNAVderived fair value of S$1.61 (10.3% total returns)
1 CCT received net proceeds of S$578.lm following the divestments of Robinson Point and Starhub Centre on 19 Apr 2010 and 16 Sep 2010 respectively.
2 According to CBRE, more than S$5 billion of office buildings have changed hands in 2010. Grade A office buildings are also benchmarked at about $2,400-$2,500 psf (end 2010), whereas a year ago, arguably it was below $2,000 psf,
3 According to CCT, its average Grade A office rent of leases expiring in 2011, 2012 and 2013 are S$13.77 psfpm, S$10.01 psfpm and S$7.73 psfpm respectively.
PST – DBSV
Look forward to DPU growth
At a Glance
• No surprises in 4Q DPU of 0.809 UScts; amounted to ~75% of distributable cash flow
• 3 rounds of acquisitions announced in FY10; we expect 11% DPU growth in FY11 and 14% in FY12
• Maintain BUY for 10% yield and 8% upside to higher TP of US$0.40
Comment on Results
Revenue and operating profit in 4Q10 came in 2% q-o-q and 8% y-o-y lower, owing to more off-hire days arising from repairs to the 2 time-chartered vessels. Net cash generated for 4Q10 came in at US$6.4m vs. US$7.0m in 3Q10 due to the expenses related to the abovementioned technical repairs. However, 4Q10 DPU of 0.809 UScts remained largely stable as the Board decided to retain less cash and distribute 75% of distributable income, higher than the 70% payout in preceding quarters.
Outlook & Recommendation
During FY10, PST announced 3 separate acquisition deals to drive growth and diversification of the fleet – two new Capesize bulk carriers for delivery in Sep 2011, 2 MPP vessels for delivery in Sep/Dec 2012 and 5 Supramax bulk carriers for delivery in Nov 2012 – Apr 2013. While pre-delivery payments will be met by residual cash and bridge loans from sponsor PIL, the Trust has already secured about US$150m debt financing for the first two deals at surprisingly high loan-to-value ratios in excess of 80%. Net gearing as at end-FY10 increased to ~1.0x and could hit 1.2x by end-FY11 but we believe an equity issue may be in the offing by FY12.
We remain positive on these yield accretive acquisitions and expect DPU growth of 11-14% in FY11-12, even after accounting for a potential equity issue of US$40-50m in FY12. We like PST for its strong balance sheet and capital structure to take advantage of the opportunities in the shipping cycle and acquire assets at lower capital values with potentially higher asset yields. Our TP is slightly revised to US$0.40 as we adjust our payout ratio assumptions. Maintain BUY for 10% yield and price upside of about 8%.
Sabana REIT – BT
SLA to acquire 600,000 sq ft of land
The Singapore Land Authority (SLA) yesterday announced that it is acquiring some 600,000 square feet of land for the construction of the first stage of the North South Expressway – stretching from Admiralty Road West to Toa Payoh Rise.
Market observers say this is its first major compulsory land acquisition in about a decade. The last time it bought land on such a large scale was in 2001, when it acquired about 860,000 sq ft of land to build the Kallang/Paya Lebar Expressway and the second part of the Circle Line. Then, about half of the 126 affected owners of homes, shops and offices in Paya Lebar and Geylang said the amount of money offered by the SLA as compensation was not enough.
An SLA spokesman said compensation will be pegged at market value as at the date of acquisition, in accordance with the provisions of the Land Acquisition Act made in 2007.
A collector’s inquiry will be conducted by the Collector of Revenue to determine the quantum of the compensation award. Owners affected by the acquisition will also be asked to submit their claims to the Collector of Revenue.
While the acquisition this time round is unlikely to trigger the sort of discontent that was felt among property owners affected by the 2001 acquisition, market watchers said that the part lots – which are a cut of one plot of land – that are being bought over could create a tricky situation. In its statement, SLA said it will be purchasing 38 full lots and 33 part lots.
Said DTZ Debenham Tie Leung Statutory Valuation executive director Ng Poh Chue: ‘If it cuts through part of your building, then what is going to happen?’
Then there is the issue of sentimental value that owners might have for their property, added Ms Ng.
She noted, though, that the government has been ‘quite sympathetic’ to land owners in such situations, and has been known to make ex-gratia payments in certain cases. An ex-gratia payment is a payout made without the giver recognising any liability or legal obligation, and is done voluntarily.
SLA said all affected owners will be given two years from the date of acquisition to vacate the premises. Its latest acquisition comprises a mixture of residential, industrial and institutional developments.
Separately, the SLA is acquiring some 7,445 sq ft of land forming part of Sabana Shari’ah Compliant Reit’s property at 1 Tuas Avenue 4 for road works along Pioneer Road and Tuas Avenue 4 in connection with the Tuas West Mass Rapid Transit extension.
Sabana Real Estate Investment Management (Sabana), the manager of Sabana Reit, yesterday said that the plot represents about 5 per cent of the property’s total land area, and that it would not affect its existing building structures there, said Sabana. ‘The manager is of the view that as the existing building structures are not affected by the compulsory acquisition, the gross floor area of the building is not affected and there should be no impact on the rental payable by the lessee of the property.’
Sabana will engage a licensed valuer to assess and submit a compensation claim for the affected site.
SLA also stated in its notice that Sabana Reit is entitled to a one-time ex-gratia reimbursement for the preparation of the valuation report, said Sabana.