CMT – UOBKH
1Q08: Organic growth from asset enhancements
Organic growth driven by asset enhancements. CapitaMall Trust (CMT) reported gross revenue of S$121.1m in 1Q08, an increase of 24.2% yoy. Revenue contribution from Bugis Junction, IMM Building and Raffles City grew 11.4%, 15.4% and 19.5% yoy respectively, benefiting from asset enhancement initiatives undertaken in FY07. 194,978sf of retail space representing 6.9% of total NLA was renewed at 10.4% over preceding rental rates in 1Q08. Net property income gained a faster 27.2% to S$84.7m in 1Q08 due to efforts to curb expenses, which was particularly successful at IMM Building.
Distributable income grew 27% yoy to S$65.4m. CMT announced DPU of 3.48 cents for 1Q08, an increase of 16% yoy, while retaining S$5.5m of its taxable income for distribution in subsequent quarters.
Enhancing Lot One and Bugis Junction. CMT will invest S$179.1m in FY08 for asset enhancement programmes. At Lot One Shoppers’ Mall, Levels 1 and 2 of the16,500sf four-storey retail extension was completed and tenants have commenced business. Level 1 of the retail extension will be connected to Chua Chu Kang MRT station. CMT will replace current opaque façade of the retail block at Bugis Junction with glass parapets to improve visibility of shops. Void areas at Levels 1 and 2 will be utilised for retail space and a mini-anchor space will be reconfigured to create six specialty shops.
The redevelopment of Sembawang Shopping Centre (SSC) with NLA of 128,413sf is on schedule for completion in 4Q08. CMT will decant 42,610sf of residential area and shift more retail space into the high-yielding basement, Level 1 and Level 2. 80% of total NLA has been committed and anchor tenants are Giant Hypermart, Daiso and Kopitiam.
Creating office blocks at Funan DigitaLife and Tampines Mall. CMT has received provisional permission to utilised unused gross floor area (GFA) of 385,500sf for Funan DigitaLife, which has only utilised 3.8 of its allowable plot ratio of 7.0. The unused GFA will be deployed for building a 4-storey office block with estimated net lettable area (NLA) of 277,630sf on top of the existing mall. NLA for retail will also increase by 14% from 296,601sf to 338,360sf. CMT was also granted an increase in plot ratio for Tampines Mall from 3.5 to 4.2. The additional GFA of 95,000sf will be utilised to build an office block on top of the existing mall. We expect construction to be completed by 2H 2010 and have factored in contributions from the two office blocks starting 1Q 2011.
Completed refinancing. CMT has refinanced S$312.8m bonds due in Feb 08 with S$320m term loan due in Aug 09. Interest rate for the term loan was fixed at 3.1%, lower than previous all-in rate of 4.3% for the bonds. CMT has also issued S$155m fixed rate note due in 2010 with interest rate at 3.25%. The company has largely completed the required refinancing for FY08. Current gearing is 35.3% and interest cover is comfortable at 4x in 1Q08.
Acquisitions in the pipeline. CMT is on track to increase asset size in Singapore from current S$5.9b to S$8b by 2010. Potential acquisitions in the pipeline from sponsor CapitaLand include Orchard Ion (NLA: 660,000sf), Clark Quay (NLA: 262,230sf) and One-North (GFA: 258,000sf). CMT will expand overseas with long-term target to have 30% of assets from overseas markets.
CMT provides FY08 distribution yield of 4.27%, a healthy spread of 1.92% over 10-year Singapore government bond yield at 2.35%. We have adjusted the terminal growth for our two-stage dividend discount model from 3.0% to 3.2% to reflect management’s ability to enhance rentals and capital values for its portfolio of retail malls. Our new target price for CMT is S$3.95.
AscottREIT – UOBKH
1Q08 DPU up 46.5% yoy to 2.33 S cents
Ascott Residence Trust (ART) posted 1Q08 revenue of S$45.6m, 58% higher yoy. This is driven by both acquisitions and strong organic growth. Acquisitions made after 1Q07 contributed S$12.7m revenue and S$7.1m net property income (NPI), 27.8% and 30.3% of total revenue and NPI respectively.
The serviced residences registered strong Revenue Per Available Unit(RevPAU) growth, 15% up from S$123 in 1Q07. As expected, Singapore portfolio enjoyed the strongest organic growth in 1Q08, with RevPAU increasing by 29% yoy to S$251.
Distribution per unit (DPU) increased 46.5% to 2.33 cents. This translates into an annualized DPU yield of 7.5%, compared with 10-year Singapore government bond yield of 2.3%.
We have a BUY rating on ART with target price at S$1.77. We will have a detailed analysis later.
PST – UOBKH
Lower DPU in 1Q08, but should improve with impact of new ships
Pacific Shipping Trust (PST) reported a net profit of US$0.466m for 1Q08. Excluding fair value losses on interest rate swaps of US$3.645m, net profit would have been US$4.111m. This appears to be ahead of our 2008 net profit of US$14.0m. Net profit for the remaining quarters of the year should register higher earnings due to the impact of 2 new containerships.
However, PST has declared a DPU of 0.97 US cts, 6.7% lower than 1Q07’s 1.04 US cts. PST has lowered its payout to 90% from 100% because it believes it is prudent to set aside cash to provide for future working capital and to support long-term strategic development of the trust. We have assumed a payout of 95% in FY08 instead of 90%. We are currently forecasting a DPU of 4.4 US cts for FY08. Maintain BUY and our target price of US$0.50.
FirstREIT – ML
1Q08 results
1Q08 results
First REIT has reported 1Q08 results with DPU of 1.85cps, up 5% QoQ and 16% YoY. DPU growth is attributable to organic growth from the Indonesian portfolio together with income contribution from the Singapore assets which were purchased in 2007. Singapore now accounts for 17% of total portfolio assets.
Inline with ML estimates
The results were inline with ML estimates. Net profit for the quarter accounted for 25% of our FY08 estimate. Our earning forecasts remain unchanged however we have adjusted our dividend payout ratio from 90% to 100% as advised by management. First REIT is the highest yielding Singapore REIT offering a FY08E distribution yield of 10.4%
China expansion
During 2007 First REIT signed MOUs for 4 China assets which comprise a combined total of 1290 beds. We expect First REIT will be able to transact on at least one MOU in 1H08. We are positive on First REIT’s push to regionally diversify the existing healthcare portfolio.
Maintain Buy, PO S$0.84/share
We maintain our Buy rating and 12 month price objective of S$0.84/share. As one of only two Singapore listed Healthcare REITs, we believe First REIT has access to a wide range of Healthcare related assets both in Singapore and regionally.
CMT – DBS
Results in line
Comment on Results
Results in line with expectations. CMT reported 1Q08 distributable income of $65.4m, up 27% yoy and beating its own forecast by 3%. This was achieved on a 24% jump in revenue to $121.1m. The group elected to distribute 88% of income or $58m in Q1, translating to a DPU of 3.48cts.
Strong organic growth. The better results were achieved on higher rental reversions, which were on the average 10.4% better than preceding levels, particularly at Tampines Mall, IMM Building, Bugis Junction and Plaza Singapura. The higher rentals were also a result of asset enhancement activities (AEI). Management estimates about 38% of DPU improvement since listing came from AEI activities.
More value creation from AEI going forward. Looking ahead, DPU growth is anticipated to come from value add activities at its malls. The group plans to spend $179m this year to decant valuable retail space to take advantage of its additional plot ratio. Positive contributions from these activities will kick in from FY09 as works are completed over FY08 and FY09. Current gearing is low at 35.3%, giving them debt headroom to buy up to S$1.2bn of assets.
Recommendation
We maintain our buy call on CMT with a price target of $3.93. FY08 and FY09 DPU of 15.4cts and 17.0 cts, translate to a yield of 4.4% and 4.9% respectively.