CMT – BT
CMT’s Q3 distributable income jumps 23.3%
Unitholders will receive the Q3 distribution of 2.35cents on Nov26
CAPITAMALL Trust (CMT) yesterday posted a net property income of $94.5 million for the third quarter ended Sept 30. This is 8.8 per cent more than a year ago.
Higher net property income was driven by an increase in gross revenue, from the purchase of The Atrium@Orchard and the completion of asset enhancement works at Sembawang Shopping Centre.
Distributable income rose 23.3 per cent from last year to $74.9 million.
Despite the higher earnings, CMT’s distribution per unit (DPU) in Q3 was 2.35 cents – down 35.4 per cent from the 3.64 cents a year ago. This reflects the larger unit base from a rights issue early this year.
Adjusting for the rights issue, the DPU in Q3 last year would have been 1.91 cents. This would have translated to a 23 per cent year-on-year growth.
Unitholders will receive the Q3 distribution of 2.35 cents on Nov 26. On an annualised basis, the DPU is 9.32 cents, representing an annualised yield of 5.27 per cent based on the closing unit price of $1.77 on Wednesday.
Notwithstanding the economic slowdown, CMT managed to record positive rental reversions from January to September. Across its portfolio, rental rates have risen 1.8 per cent over preceding rates typically committed three years ago.
CMT’s portfolio occupancy rate as at Sept 30 was 99.6 per cent, just 0.1 percentage point lower than nine months ago.
‘Recent economic data indicate that the worst may be over,’ said chairman of trust manager CapitaMall Trust Management, James Koh. ‘With the clear but modest recovery, we expect retail sales in the upcoming months to be supported by festive spending.’
CMT, together with CapitaCommercial Trust, will start on asset enhancement works at Raffles City in Q4 2009. The initiative will cost $33.23 million, and is expected to contribute positively to CMT’s income when works are completed in Q4 2010.
Preparation for asset enhancement works at Jurong Entertainment Centre is also on track, CMT said.
The counter lost four cents yesterday to close at $1.73.
MLT – DBS
Attractive yields
At a Glance
• In line with ours, above consensus
• Stable portfolio occupancies
• Maintain BUY, TP S$0.83, offering a total return of 18% backed by stable FY09-10F DPU yields of 8%.
Comment on Results
Stable 3Q09. Mapletree Logistics Trust (MLT) reported 3Q09 results that were in line with expectations. Gross revenues and net property income (NPI) increased by 10.3% and 9.5% to S$50.8m and 44.1m respectively, as a result of a larger portfolio. Distributable income came in at 28.8m (+13% yoy), translating to a DPU of 1.48 Scts. On a q-o-q basis, performance remained stable.
Occupancy levels at 97%. Occupancy levels held up pretty well, which were slightly above our estimates of 96%. Looking ahead, with only 4% of their revenues up for renewal in 2H09, we expect occupancy levels to remain stable – we have tweaked our occupancy assumptions for FY09 slightly upwards, which increase our FY09-10F DPU estimates slightly 2%.
Selectively acquisition. The manager of MLT emphasizes that while they are considering potential targets, they will only likely go ahead with the acquisitions, only if they are accretive and value enhancing to the portfolio. Also, these acquisitions should not be overleveraging its balance sheet, which, in our view, is reassuring to investors of management’s cautious and prudent approach towards growing its portfolio.
Recommendation
Buy for stable yields, TP S$0.83. We believe that MLT, trading at 0.8x P/BV, offering with a prospective forward FY09-10F DPU yield of 7.8% remains attractive. Maintain BUY, TP S$0.83 on the on the back of higher earnings estimates and lower WACC of 6.6% compared to 7%. Upside surprises will stem from MLT acquiring properties from market/sponsor.
FSL – OCBC
Guides for 1.5 US cents 4Q DPU
Results in line. FSL Trust (FSLT) posted US$24.6m in revenue, up 4% YoY but marginally down 0.9% QoQ. Net cash generated from operations of US$17.6m rose 11.5% YoY and 3.1% QoQ. DPU, however, fell 50.8% YoY and 38.8% QoQ to 1.5 US cents. This was primarily because of the lower payout policy as well as the first effects of dilution stemming from the recent placement. Cash retained for the quarter has been used to prepay loans. Note that 1.27 US cents of the DPU amount has already been declared for the pre-placement units in September. All units will enjoy the outstanding 0.23 US cents amount.
Stitching up the balance sheet. FSLT has had a busy 3Q09. First, it secured loan-to-value covenant waivers from creditors that lower the required market-value-to-loan coverage from 145% to 100% for a two year period. In return, FSLT shifts away from a bullet repayment structure and begins repaying US$8m in loans per quarter. Its cost of debt is also higher. Second, FSLT raised US$28.3m (net) through a placement of new units. The proceeds are earmarked towards acquisitions. These steps coupled with the already enforced lower payout policy coalesce into a strategy of “defensive to be offensive”, marking an important turning point in FSLT’s business model. Moreover, the planned asset buys will give the manager a chance to demonstrate the 1) quality of counterparty; 2) asset yield; and 3) lease structure available to FSLT.
Guidance surprises for 4Q DPU. FSLT has guided for a 4Q DPU of 1.5 US cents or flat QoQ. This is almost 5% higher than our estimate of 1.43 US cents, which was driven by the time lag between the dilution from the placement and the utilization of the proceeds. While we believe this time lag still exists, FSLT’s guidance suggests it has enough surplus cash that was retained in previous quarters to fill any shortfall. In addition, our estimates assume that any acquisition is not completed until 1Q10. If FSLT is able to move faster, early contributions from new vessels could also support the gap.
Still our top pick. Now that the immediate balance sheet overhang has been addressed, we believe our FY10F yield estimate of 14% is fairly defensible. Key risk remains counterparty health in a weak shipping
environment. Nevertheless, FSLT is our top pick in the shipping trust sector for its diversified vessel portfolio as well as its newly restructured business model. Maintain BUY with S$0.72 fair value.
CMT – OCBC
AEI engine re-ignited
Results in line with expectations. CapitaMall Trust reported its 3Q09 results and they were in line with our expectations. Gross revenue increased by 7.5% YoY and 0.6% QoQ to S$129.7m, driven by the acquisition of Atrium and completion of asset enhancement initiatives (AEI) at several malls. Net property income was up by 8.8% YoY and 0.8% QoQ at S$94.5m. Portfolio occupancy rate remained strong at 99.6% at end-3Q09 and CMT also managed to achieve better rental reversions from new and renewal leases in 3Q09. DPU of 2.35 S-cents was declared for the quarter.
Consumer spending outlook remains cautions. Shopper traffic at CMT’s retail malls declined by 3.2% YoY and 2.4% QoQ in 3Q09, which was partly attributable to the opening of new malls like ION Orchard. As such, gross turnover of CMT’s tenants declined by 2.5% YoY and 0.5% QoQ in 3Q09. There is still no strong pick up in consumer spending in 3Q09 as majority of the retail trade categories operating in CMT’s malls are still seeing negative growth in gross turnover for the year to date. Slow recovery in consumer spending is likely to cap any rental increase going forward.
Restarting the AEI growth engine. Nevertheless, growth could still be sustained by AEI and reconfigurations, which had been the key DPU growth driver since IPO. CMT has proposed to build a new underground link connecting Raffles City to Esplanade MRT Station, which is expected to open in 2Q/3Q 2010. This project is expected to cost S$33.23m and generate incremental value of S$10.94m to CMT. Expected completion date for this project is in 4Q 2010, after which CMT still has a pipeline of AEI that will follow through – Atrium and Jurong Entertainment Centre.
Fair value raised to S$1.69; maintain HOLD. We are now raising our fair value of CMT to S$1.69 (previously S$1.53) after adjusting our retail rent growth expectations to 0% for FY09 and FY10. Our FY09 and FY10 DPU forecasts have also been raised marginally to 8.98 S-cents (previously 8.95 S-cents) and 9.28 S-cents (previously 9.1 S-cents), translating to DPU yield of 5.2% and 5.4% respectively. Growth outlook is more positive now, with new AEI coming up. Opportunities for acquisition are also opening up, with HDB currently in search of a potential buyer for Clementi Mall, which has a suburban catchment and could be of interest to CMT. We maintain our HOLD rating on valuation ground but will turn buyer at prices below S$1.60.
FCT – DBS
Good things are worth waiting for
At a Glance
• Results are in line with estimates
• Catalysts in sight.
• Maintain BUY, TP S$1.34, prospective 6.5-7.3% yield
Comment on Results
Ending the year well. 4Q09 results were in line with our estimates. Gross revenues and net property income were higher by 13% yoy and 25% yoy to S$24.8m and 17.6m respectively. The increase was mainly attributed to the improvement in revenue generated from Northpoint upon the successful completion of its enhancement works. Distributable income came in at S$12.8m ( 0% yoy) , translating to a DPU of S$2.04 Scts.
FCT recorded an upward revaluation of $37m even with higher cap rates (+0.25-0.75%) used by its valuers, highlighting the strong performance of its underlying assets.
Financial metrics are strong. Gearing remained relatively low at 29.9% with a healthy interest cover of 6.12x. NAV per share remained steady at S$1.22.
Catalyst for growth- acquisition. Looking ahead, other than organic growth drivers from rental reversions and contribution from Northpoint. We believe that further catalysts for growth will derive from their planned acquisition of Northpoint II and Yewtee Point properties which are both trading at almost full occupancy. This in our view, should address FCT’s current size and liquidity constraints. We have estimated a acquisition size of S$300m at 7% yield funded by a 30/70% Debt/Equity ratio in our numbers.
Recommendation
Maintain BUY, TP S$1.34. With potential catalysts in sight, we continue to like FCT as a good proxy into Singapore’s sub-urban retail sector offering a clear expansion pipeline of quality retail assets. FCT currently offers a prospective FY10-11F DPU of 6.5-7.3%.