CMT – DBS
Office extension, the sequel
Comment on Results
• Revenue and NPI grew by 40% and 45% y-o-y to S$114.5m and S$76.8m respectively. DPU for 3Q07 grew by 19% to 3.4 cts and 9.52 cts.
• For 3Q07, distribution income was retained as CMT continues to dish out Asset Enhancement Initiatives (AEIs). CMT is expected to dish out S$168.6m and S$127.2m for capex in FY07 and FY08 respectively for the whole portfolio. For 3Q07, approx.
S$1.6m was retained by CRCT, which together with the S$4.6m retained in 1Q07, we estimate a DPU kicker of approx. 0.4 cents for 4Q07.
• CMT’s gearing has reached 40%, which suggests an equity raising is imminent for a sizable acquisition. Interest cover remains healthy at 4.9x, and average cost of debt remains stable at 3.5%.
Recommendation
• Apart from decantation of space to create a four-storey retail extension block with 16,500 sf NLA at Lot One Shopping Mall (CRS portfolio), CMT has also announced that URA has granted Tampines Mall a plot ratio increase from 3.5 to 4.2. This creates an additional 95,000 sf of office space, approved for a new office development.
• We are positive on CMT with its consistency in dishing out AEIs, which are integral for the growth of the REIT management business (34% of total DPU growth since listing). With a strong developer sponsorship from CapitaLand, we are also positive about CMT reaching its asset size of S$7bn by FY09. Maintain Buy, target price slightly raised to S$4.34 based on DCF valuation to factor in the announced asset enhancements.
AREIT – DBS
Turning to development projects?
Comment on Results
• Gross revenue and net income available for distribution grew 15% yo-y to S$80.2m and $46.5m respectively, due to additional rental income from completed acquisitions. DPU increased 11% to 3.51 cents.
• As at 30 Sep 07, A-REIT has an aggregate leverage of 38.4%, with an average 91% of interest exposure fixed at a weighted average cost of 3.43% for a term of 4.2 years.
• A-REIT announced that it has committed to develop projects (i.e. Plot 8 Changi Business Park and an industrial facility at Pioneer Walk) at a total cost of S$277m.
Recommendation
• As the environment for third-party acquisitions gets increasingly more difficult in Singapore, we are positive on the move by A-REIT to undertake more development projects, which provide better yields.
• We have reduced our DPU forecast for FY08 and FY09 by 4% and 6% respectively, given that A-REIT has not made any announcements on income-yielding acquisitions in 1HFY08. As we have already assumed an acquisition pipeline of S$400m pa till 2010 in our valuation, the net impact of the inclusion of the development projects (phased over FY09 to FY11) and lower DPU is a slight increase of target price to S$3.18 (based on DCF valuation).
FrasersCT – SGX
Frasers Centrepoint Trust closes first full year with DPU 12% above forecast
- Full year 2007 DPU of 6.55 cents
- FCT to acquire Northpoint 2. Four malls for injection over the next three years
- FCT will start on its second mall enhancement initiative at Northpoint in first quarter 2008
- “We are firing well on all cylinders,” says CEO Christopher Tang
FCT’s distributable income for fourth quarter 2007 (period 1 July to 30 September 2007), was S$10.3 million, 13.5% higher than the forecast of S$9.1 million. This translates to a distribution per unit (“DPU”) of 1.67 cents. Full year DPU was 6.55 cents, an increase of 12.0% above the forecast of 5.85 cents.
In fourth quarter 2007, gross revenue was S$19.8 million with net property income at S$12.8 million. In spite of the Anchorpoint asset enhancement programme which began in May 2007, the weighted average occupancy rate of FCT’s portfolio was 94.5% as at 30 September 2007. Causeway Point and Northpoint achieved occupancy rates of 99.9% and 100.0% respectively. Anchorpoint’s occupancy rate was 52.0% as sections of the mall had been vacated for asset enhancement and repositioning works. There was strong rental reversion, with new and renewed leases recording an increase of over 12% above preceding rates. “This demonstrates the trend for strong and sustainable rents for FCT’s malls, and our asset enhancement initiatives will benefit tenants and pave the way for further rental growth,” said Mr Christoper Tang, CEO, Frasers Centrepoint Asset Management Ltd, the Manager of Frasers Centrepoint Trust.
“We are firing well on all cylinders. FCT’s primary focus is to be a leading retail mall owner and manager delivering sustainable DPU growth through four strategic growth thrusts. And on all four we have a healthy state of report,” he says. The four thrusts are building up a pipeline of quality malls for future injection into FCT; growth through increasing rental reversions; growth through asset enhancement initiatives; and growth through overseas expansion.
Source : SGX
AREIT – OCBC
Market continues to expect strong growth
DPU growth slowed on fewer acquisitions. Ascendas REIT (AREIT) reported an unexciting 2Q08 results with revenue rising 15% YoY and 4% QoQ to S$80.2m. Distribution per unit (DPU) came in at 3.51 cents +11% YoY and +4% QoQ. This is slightly better than our forecast of 3.4 cents, and we are marginally adjusting our FY08F from 13.4 cents to 13.9 cents. We retain our FY09 estimate of 14.5 cents. The growth driver in the last quarter was from lease renewal and not from acquisition. This is clearly seen from the flat sequential growth of AREIT’s investment property portfolio. Its NPI margin remains at 75%, similar to the last 2 quarters, reflecting the difficulty in achieving greater efficiency for industrial assets.
Market getting very crowded. The industrial market space is getting very crowded. There are presently four listed industrial REITs, with JTC REIT expected to come into the market over the next 12-18 months. More importantly, there is very little to differentiate their growth strategies. This means that growth will get more difficult and less accretive. AREIT’s situation is compounded by market continuing to price in strong growth.
Taking greater risks to deliver growth. One way to avoid the price war with other REITs is to develop its own properties. Presently, AREIT has projects (both started and yet to start) worth about S$338m. This is about the maximum that it can take based on present REIT rules and its asset size of about S$3.3bn. Assuming that it takes about 1.5 years to complete these projects, this means that AREIT’s annual capacity for new development project is at best S$200-300m. We believe this is below market growth expectation and perhaps explains the share price weakness. Another possibility open to AREIT is via M&A with other smaller players (e.g. Cambridge or MacarthurCook). Whichever route AREIT takes, it means that the risk profile is likely to rise.
Maintain HOLD. The key worry for AREIT is its high price-to-book ratio of about 1.65x (down from 2.1x since our last report in July). With the industrial REIT space getting very crowded, we see a high risk of market being disappointed . Alternatively, AREIT should start to moderate expectations. Finally, in terms of valuation, we maintain our fair value of S$2.63 and HOLD rating.
CMT – OCBC
Maiden contribution from China
Growth from CRS acquisition. CapitaMall Trust (CMT) reported a good set of 3Q07 results with revenue rising 39.5% YoY and 10.2% QoQ to S$114.5m. However, as operating cost grew at a much slower pace of 30.3% YoY and 2.2% QoQ, Net Property Income (NPI) was strong at S$76.8m +44.5% YoY and +14.5% QoQ. While no reason was given for the slower pace of operating cost growth, it did benefit from the full period consolidation of CapitaRetail Singapore (CRS) into its result as CRS was acquired in June 2007. Distributable income came in at S$53.2m, +29.1% YoY and 9.0% QoQ. The slower bottom-line growth was attributed to higher interest expense due to higher debt level from the consolidation of CRS. This was partly offset by the maiden contribution from CMT’s China associate CapitaRetail China Trust (worth about S$1.5m or 0.09 cent per CMT unit). DPU for the period came in at 3.4 cents and is slightly higher than our estimate of 3.2 cents. In light of the better performance, we are adjusting our FY07F and FY08F to 13.6 cents and 14.3 cents, up from 12.6 cents and 13.0 cents, respectively.
Benefitting from lower operating costs. In the current results, CMT benefited from higher NPI margins of about 67% as a result of lower cost escalation, which grew only 2.2% QoQ versus topline growth of over 10% QoQ. This is a reversal from 2Q07 where sequential cost grew 19% compared to revenue growth of 7%. However CMT’s NPI margin has historically not been stable and over the last 7 quarters, margin has varied from 63% to 68%. The cost inflation also does not appear to coincide with acquisitions. One possible explanation is a lag effect of cost recognition as a result of consolidation of new malls into its portfolio.
Maintain HOLD. With the CRS acquisition, CMT’s asset size has been boosted from S$4.6bn (end 2006) to S$5.6bn (including revaluation surplus of S$290m from recent revaluation). Furthermore, with the likelihood of CMT acquiring a development project soon, it is on target to achieve an asset size of S$7.0bn by 2009. CMT continues to guide for a target asset size to S$8.0bn by 2010. In terms of valuation, CMT is not cheap as it is trading at a high price-to-book of over 1.77x and with yield at only about 3.7%. We maintain our HOLD rating and fair value of S$3.44.