Frasers CT – BT
By WONG WEI KONG
Frasers Centrepoint Trust (FCT) has announced distribution per unit (DPU) of 2.05 Singapore cents for its fourth quarter ended Sept 30 2008, an increase of 23 per cent from the same period last year, said manager Frasers Centrepoint Asset Management Ltd (FCAM).
Full year 2008 DPU rose 11 per cent to 7.29 cents.
Said chief executive of FCAM Christopher Tang: ‘FY2008 capped a successful year for FCT as we deliver another consecutive year of sustained growth’.
Strong performance at Causeway Point and excellent results at the reinvigorated Anchorpoint continued to drive gross revenue and net property income growth, according to FCT.
Fourth quarter gross revenue grew 11 per cent to S$22.1 million while net property income increased 10 per cent to S$14.1 million. FY2008 gross revenue and net property income were similarly up 9 per cent to S$84.7 million and S$56.6 million, respectively.
Rentals at Causeway Point were renewed at 15 per cent above preceding rates in Q408, reflecting the continued strong demand as well as tight supply situation in the suburban retail sector.
Anchorpoint’s Q408 gross revenues more than tripled to S$2.4 million from the year before, as rents increased over 40 per cent while the mall reverted to full occupancy after the completion of enhancement work.
Overall portfolio occupancy declined to 87.7 per cent as at 30 September 2008 from 94.6 per cent a year ago as a result of planned vacancy associated with enhancement work at Northpoint.
FCT said it has a conservative gearing level of 28.1 per cent and no refinancing pressures, It has no material refinancing and interest rate risks as its term loan amounting to S$260 million only expires in July 2011, and its associated interest rate is fully hedged.
The asset enhancement works at Northpoint is on schedule for completion by June next year, it said. Rentals at Northpoint are projected to increase 20 per cent to S$13.20 per square foot per month, translating to a 30 per cent increase in net property income to S$18.0 million. With close to 90 per cent of Northpoint’s post enhancement net lettable area already committed, Northpoint is set to provide a substantial boost to FCT’s income from the second half of FY2009 onwards.
CMT – CIMB
Rough times ahead
• Performance on track. 3Q08 results were in line with Street and our expectations. DPU of 3.64cts for the quarter grew 7.1% yoy to form 26.3% of our forecast of 13.9cts for FY08. This excludes S$1.6m of revenue received from CRCT which has been retained for distribution in 4Q08. Gross revenue of S$129.7m was up 13.3% yoy on new contributions from Atrium@Orchard and the completion of various asset enhancement initiatives (AEI) in various malls. YTD DPU forms 76.8% of our full-year estimate, in line. Additionally, management remains committed to distributing the S$5.5m retained in 1Q08 in 4Q08.
• AEI and acquisition updates. Management revealed that planned AEI initiatives for Jurong Entertainment Centre, Funan DigitaLife Mall and Tampines Mall have been put on hold due to high construction costs although AEI for Atrium@Orchard and its integration with Plaza Singapura are expected to proceed on track, subject to official approval.
• Changes to assumptions. CMT has performed well thus far despite weakening global economic conditions. Nonetheless, a deepening global and domestic recession is expected to weaken rental reversion possibilities going forward while the global credit crunch will make debt availability for new acquisitions difficult. On this, we remove our earlier forecasts of acquisitions for Ion Orchard, Clark Quay and Vista Xchange, and drop our rental growth forecasts to 0-2% for FY09 and -10% for FY10, down from 3-15% growth expectations earlier. We also forecast a 1% drop in occupancy by 2010 for downtown malls which would be facing more competition from new supplies. Separately, we increase our associate contribution forecasts on strong YTD performances and higher cost of debt assumptions for FY09 onwards by 70bp.
• Downgrade to Underperform from Neutral; lower target price of S$1.90 (from S$3.64). Following the above various adjustments, our DPU estimate for FY08 increases by 3%, while our FY09-10 estimates decrease by 5-25%. Accordingly, our DDM-derived target price (discount rate 9.7%) drops to S$1.50 from S$3.64. Downgrade to Underperform in view of a weakening macroeconomic outlook.
MapleTree – DBS
Resilient Earnings
Story: Gross revenues and NPI grew 19.6% and 18.7% yoy to S$46.0m and 40.2m respectively. Main drivers were contributions from an enlarged portfolio; 18 properties were bought through the course of the year. Distribution income also increased 33% to $25.4m, translating to a DPU of 1.84cts. DPU, however was 9.8% down sequentially due to diluted from the rights issue completed in Aug’08. YTD, DPU of 5.78 cts was 85% of our projected FY08 estimate. The outperformance came from MLT keeping interest costs low at an average effective rate of 2.7% and interest savings from the repayment of loans.
Point: Faced with slowing global trade moving forward, the focus of MLT will be (i) yield optimization from its existing portfolio and (ii) tenant retention. While we expect slowing economic activity to affect demand for logistics space, we view that any impact from falling occupancies to be mitigated as 61% of its leases are locked in longterm basis with incorporated stepped up rentals clauses. Going forward, we adjust our occupancy assumptions slightly downwards to 95% in FY09-10. With lower occupancies and no further acquisitions assumptions, our DPU estimate over FY09 is adjusted down by 8.9% to 5.4 cts.
Relevance: We have lowered our TP to S$0.57 from S$1.04 previously due to the exclusion of any acquisition assumptions. We continue to like MLT for stable income stream with potential for upside when it executes on its acquisition pipeline going forward. At current price level, MLT offers an attractive fully diluted FY09-10 DPU yield of c.11% and 18% upside to our target price. Maintain BUY
CMT – DBS
Enhancements put on hold
Story: 3Q08 revenue and NPI grew by a similar 13% yoy and 3% qoq to $129.7m and $86.9m respectively, thanks to organic growth and new contributions from Atrium. Excluding Atrium, topline would have grown 10% yoy. The group plans to distribute 97.5% of income amounting to $60.8m, translating to DPU of 3.64cts.
Point: During the quarter, leases were renewed at 9.3% higher than preceding levels. Occupancy remained at a high 99.7% while tenant retention rate averaged about 79.6% YTD vs 82.4% in 2007. CMT continues to provide good earnings visibility going forward. A portion of the 31% of portfolio rental income scheduled to be reviewed in 2009, have been locked in through pre-commitments at SSC and Lot One, where enhancement works are anticipated to complete by end 08. As a result, current locked-in revenue for 2009 exceeds 83% of 2008 annualised gross revenue. In view of the tight resource environment and high construction costs, the group
intends to put on hold AEI at JEC and FIT and Tampines office extensions. Refinancing issues are being addressed with sufficient funding capacity to meet financing needs till June 09 and plans to refinance the remaining $680m debt due Aug 09 is in progress.
Relevance: Notwithstanding CMT’s diversified and resilient portfolio of suburban malls, we have lowered our FY09 DPU forecast to 14.5cts to adjust for a slower pace of rental growth and assumed higher vacancy levels in view of the moderation in economic activities. With the deferment of redevelopment projects, we have lowered our DCF to $2.63. Our price target of $2.42 is pegged at parity to RNAV of $2.42. Maintain Hold.
CMT – OCBC
Slowing reversionary growth in 3Q08
Slowing reversionary growth. CapitaMall Trust (CMT) reported a soft set of 3Q08 results. Revenue grew 3.3% QoQ to S$129.7m and the increase was largely attributed to the contribution of S$3.3m from Atrium@Orchard. New and renewal leases contributed just S$0.8m to the quarterly increase in 3Q08. Slowing rental renewal was further evidenced from the decline in the % increase in current rental rates against preceding rental rates between 2Q08 (9.9% increase for 6m08) and 3Q08 (9.3% increase for 9m08), implying that reversionary growth had slowed QoQ. DPU of 3.64 S-cents was announced for 3Q08, translating to an annualized yield of 6.9% base on yesterday’s closing price.
Keeping watch on debt refinancing. No refinancing was done in 3Q08 but management assured that CMT has sufficient cash and bank facilities to refinance its borrowings due in December 08 (S$187.5m) and May 09 (S$80m). However, the lack of investor appetite for medium term notes (MTN) means that CMT is unlikely to be able to draw down on its untapped MTN facility for refinancing purposes unless sentiment changes for the better. While this may have raised more uncertainties on the refinancing of the S$673.7m of borrowings due in August 2009, CMT still has a buffer period of 10 months to seek refinancing.
AEIs put on hold. CMT has also announced that it will be putting on hold its asset enhancement initiatives (AEI) for Funan DigitaLife Mall, Tampines Mall and Jurong Entertainment Centre due to the high construction cost and competitive market for resources. In light of the current tight credit market condition, we see these delays as a positive move by CMT not to overstretch its financial resources and affect its credit rating at a time when its credit health and refinancing should be the priority. AEI for Atrium@Orchard still remains on track and is now waiting for approval from authorities.
Fair value lowered to S$2.57. With further evidence of slowing rental reversion, we are now cutting our rental growth to 0% for FY09 and FY10, but we maintain our view on the defensiveness of retail REITs. As such, our FY09 and FY10 DPU forecasts have been lowered to 16.2 and 17.1 Scents, respectively. Also factoring in the decline in the share price of CapitaRetail China, our fair value of CMT has been lowered from S$3.05 to S$2.57. Current share price still provides an upside of 21.8% and we maintain our BUY rating on CMT.