CMT – OCBC
Encouraging signs of growth
In line with expectations. CapitaMall Trust’s 1Q10 results came in within our expectations. Gross revenue increased 3.4% YoY to S$139.1m, underpinned by higher new and renewal leases, and higher contribution from Sembawang Shopping Centre, where asset enhancement was completed only in late December 2008. Net property income increased 5.7% YoY to S$97.7m. Even though DPU of 2.23 S-cents for 1Q10 fell short of the 2.32 S-cents that we have projected, this was due to the retention of S$9.5m of taxable income this quarter. The higher amount of income retained in 1Q10 was a precautionary move against possible higher operating expenditures, as well as higher interest expense going forward.CMT still remains committed to a 100% payout of its distributable income for FY10.
Rent reversion should remain healthy at portfolio level. Management shared that 60% of leases expiring this year will be due for renewal in 2H10, and some of these rents were signed at the peak of the rental market 3 years back. A further analysis of CMT’s expiring leases shows that Plaza Singapura, Bugis Junction and Lot One are most prone to negative rent reversions this year but we note that expiring leases from these three properties account for just 24% of the current gross rental income from these expiring leases. The remaining portion of the expiring leases should still be able to enjoy positive rent reversions and this should be able to cover the lost income from negative rent reversions.
Encouraging operating statistics. We are seeing encouraging signs of growth from CMT’s operating statistics. Its malls turned in positive rent reversion of +6.2% in 1Q10, sharply higher than the +2.3% achieved in FY09. More trade categories are seeing increase in their gross turnover in 1Q10. While the portfolio occupancy rate fell to 99.4% at the end of 1Q10, this was attributable to the termination of a mini-anchor tenant at Plaza Singapura – Barang Barang, which filed for voluntary liquidation in Feb. CMT has already received offers from several interested parties for the vacated space.
Downgrade to HOLD on valuation ground. We are not making any changes to our forecasts and we maintain our fair value at S$1.93, which is pegged at parity to RNAV. The outlook remains positive and we continue to like CMT for its strength in capital management, retail asset management and enhancement. But with the recent increase in share price, projected total return has fallen to 9.6%. As such, we are now downgrading CMT to HOLD on valuation ground, with a view to accumulate at more attractive levels of S$1.75-S$1.80.
FSL – OCBC
Asset values edge up versus October
DPU in line. FSL Trust (FSLT)’s 1Q10 DPU of 1.5 US cents was flat QoQ but fell 38.8% YoY because of a lower payout policy and a larger unit base post-placement. Guidance for 2Q10 DPU is flat at 1.5 US cents, offering an annualized yield of 13%. The manager quite emphatically stated it would not return to the days of a 100% payout; it prefers a “fixed dividend + incremental growth” strategy that will allow it to retain some excess cash.
Acquisition plan hits the “homestretch”. FSLT has yet to deploy the US$28.3m net proceeds from its Sep 2009 placement; so for roughly seven months, the larger unit base has not been offset by additional income or lower expenses – creating a shortfall between cash generated and cash paid out. The manager is now saying an announcement is likely in “a matter of weeks / possibly in a month of two”. FSLT reiterated its target asset yield of 15% and its plan to further diversify into a previously untapped vessel sub-sector (for example, offshore). A significant change in guidance is that FSLT is “now hopeful of lifting acquisition projects over and above” the placement proceeds because of increasing access to capital.
Asset values edge up. In a Mar 2010 charter-free revaluation of its portfolio, FSLT recorded a 5.5% gain in asset values versus Oct 2009. The current value-to-loan (VTL) coverage of 129% is comfortably above the current reduced 100% VTL requirement but below the 145% threshold required after end-2Q FY11. Assuming asset values remain stable and taking US$8m quarterly repayments into account, FSLT can touch 140% coverage by Jun 2011. Cash in hand and the planned unencumbered acquisition adds further cushion. Still, FSLT is taking no chances and may opportunistically issue unsecured debt (the manager guided that BB- high yield debt in Asia is attracting pricing of 10-13% at present). The trade-off versus secured debt (costing roughly 6% today) is large, but this may be a necessary evil to remove the VTL covenant overhang, once and for all.
Valuation. We have revised FY10 estimates to reflect an assumed acquisition completion date of 01 Jun (prev: 01 Jan). In light of increased stability in FSLT’s operating environment, we are 1) lowering our discount rate from 13% to 11.5%; and 2) now derive our fair value estimate using a 20% discount to this discounted FCFE value (prev: 25%). But balance sheet issues are not eliminated completely, and we maintain our HOLD rating with revised S$0.59 fair value [prev: S$0.53].
Cambridge – DBSV
One step at a time
• Portfolio restructuring on track – additional S$70m of assets earmarked for sale
• Gearing could head down towards 38% post restructuring
• Maintain BUY, TP S$0.54, offers total return of 16%
1Q10 results in line. Cambridge REIT (“CIT”) declared a 1Q10 DPU of 1.274 Scts, amounting to 25% of our full year forecast. Revenues grew 1.2% yoy to S$18.6m as a result of higher rentals from rental escalation from selected assets offset by the income vacuum from the divestment of 2 properties. Net property income likewise rose 1.2% to S$16.3m as a result of stable operating margins.
Divestment strategy on track – earmarking additional S$70m of assets. In 1Q10, CIT divested additional 32 strata units in Enterprise Hub, bringing in S$21.5m in proceeds. The manager has earmarked an additional S$70m worth of assets to be sold during the course of this year. Cash received from the divestment are earmarked for debt repayment or can reinvested into new assets. Incorporating the first scenario and assuming debt repayment at the end of FY10, we estimate that (i) impact from the loss on contributions on earnings in FY11 is minimal at -3% and (ii) gearing levels is projected to improve towards 38% in FY11.
Evaluating asset enhancement opportunities. Management also shared that they are exploring several opportunities to enhance a couple of its properties, where plans could include (i) minor works to raise gross NLA or (ii) intensifying current plot ratios at a couple of its properties. While no firm details have been finalized, we believe that the execution of these opportunities could present re-rating catalysts for the stock.
Attractive 10% yields. We like the asset and financial management initiatives by CIT’s, which will result in a stronger balance sheet going forward. The stock currently trades at 0.85x P/bv, below its industrial peers who are trading in the 1.0x – 1.2x P/bv range and offers a stable FY10-11F DPU yields of c10%.
PST – BT
Pacific Shipping Trust Q1 DPU falls 19%
Revenue from trust’s vessels stays flat at US$15.2m
PACIFIC Shipping Trust (PST) has registered a 19 per cent drop in first-quarter distribution per unit (DPU) to 0.793 US cent, from 0.980 US cent a year back.
The latest DPU is also a drop from 0.827 US cent in Q4 2009, as revenue from the trust’s 12 vessels stayed flat at US$15.2 million.
Income retained for working capital rose to US$10 million, from US$3.2 million in Q1 2009. As a result, income for distribution fell to US$4.7 million, from US$5.8 million previously.
‘PST continues to deliver a healthy performance as a result of our prudent financing structure and the fact that our vessels are fully financed,’ said Teo Choo Wee, acting chief executive of trustee-manager PST Management.
‘Our stable financial situation and cash retention place PST in a position to capture accretive opportunities for strategic fleet expansion as the market gradually recovers.’
Mr Teo also said at PST’s Q4 results presentation that he was looking to undertake ‘value-accretive acquisitions’.
Troubled Chilean line Compania Sud Americana de Vapores, which has chartered two vessels from PST for five years, has recently raised US$773 million of new capital, PST said.
It also said that the recovery of the container ship market in Q4 last year continued into Q1 this year, with an increase in freight rates adding to a rise in asset prices.
‘The freight rate recovery continued into Q1 2010, triggering the gradual reactivation of idle tonnage in the container ship sector,’ Mr Teo said.
‘We are cautiously optimistic that with improving freight rates and global trade forecast to grow 9.5 per cent in 2010, charter rates have begun to bottom out.’
PST’s Q1 DPU represents a tax-free annualised yield of 10.8 per cent based on yesterday’s closing unit price of 29.5 US cents.
CMT – BT
CMT optimistic of future growth
Its Q1 distributable income rises 13.6%; net property income up 5.7%
CAPITAMALL Trust (CMT) yesterday posted stronger results for the first quarter ended March 31 and signalled optimism ahead.
There will be more asset enhancement initiatives at Junction 8 and Tampines Mall. Ongoing works at Raffles City Singapore and Jurong Entertainment Centre are also on schedule.
‘We are now firing up all three engines of our growth strategy, comprising active lease management, asset enhancements and yield-accretive acquisitions,’ said Simon Ho, CEO of CMT Management. ‘We will also continue to be on the look-out for selective acquisition opportunities.’
CMT Management chairman James Koh also said that CMT ‘is poised to benefit further from the broad economic recovery and expected growth of tourist arrivals’.
CMT’s net property income in Q1 was $97.7 million, up 5.7 per cent from a year ago. Earnings improved as rents for new and renewed leases rose and operating and interest expenses fell. There was also greater contribution from Sembawang Shopping Centre after refurbishment works were complete.
Distributable income to unitholders grew 13.6 per cent over the same period to $71.1 million. Distribution per unit (DPU) for Q1 was 2.23 cents, and unitholders can receive this payout on May 27.
This DPU is 13.2 per cent higher than the 1.97 cents a year ago. The annualised DPU in Q1 was 9.04 cents, translating to a yield of 4.9 per cent based on CMT’s closing unit price of $1.86 on Tuesday.
The counter ended trading at $1.85 yesterday, one cent down.
CMT’s recent purchase of Clarke Quay brought its asset size as at March 31 to $7.8 billion. Its portfolio occupancy rate was 99.4 per cent, down from 99.8 per cent three months ago.
CMT is building a two-storey food and beverage annex block at Junction 8, which will have a net lettable area (NLA) of some 3,500 square feet. It will also reconfigure some retail units at Tampines Mall and relocate a taxi stand there. Works at these malls are expected to be done by the end of this year.
Meanwhile, asset enhancement works at Raffles City Singapore are also due for completion by year-end. Of the additional NLA of 16,285 sq ft to be created at Basements 1 and 2, over 70 per cent has been leased.
CMT said some years back that it might integrate Atrium@Orchard with Plaza Singapura and create more retail space. It told BT that the plan is under review, and there will be an announcement when it is firmed up.
CMT has refinanced all borrowings due this year with the issuance of medium-term notes in January, March and April. Taking the April issue into account, its pro forma gearing ratio as at March 31 would be 34.7 per cent.