Signing of a top Chinese player

Indirect entry into the PRC retail market. The PRC retail market has been experiencing strong demand. Retail sales have been growing by about 12.5% per annum for the past 10 years, outperforming the GDP growth at about 9.7%. Retail rental growth is expected to grow between 5-8% for the next five years and we like the exposure in PRC retail malls from CMT’s perspective.

Inheriting CRCT’s robust pipeline. With ROFR to acquire assets under two Capitaland funds in CapitaRetail China Development Fund (“CRCDF”) and CapitaRetail China Incubator Fund (“CRCIF”), CRCT now holds a proprietory pipeline of acquisitions to more than 70 retail malls. They cover over 3.2m sqm of gross retail space which when injected, would see CRCT expand its portfolio by more than six fold. Based on the sheer size of the acquisition pipeline for CRCT, CMT now possess an alternative channel of growth, leveraging on the strong growth of the PRC retail property market.

Upgrading to Buy, TP S$ 3.30 based on sum of parts valuation. In view of expected robust growth for CRCT, we now view that a sum-of-parts valuation is more appropriate, pricing the cash flows of CMT’s portfolio as well as upside from the strategic stake in CRCT. We now peg our fair value of CMT based on 1) DCF valuation of CMT’s portfolio and 2) marked-to-market value of CRCT. Therefore in view of strong acquisition pipeline, further value creation from AEI initiatives, and active leasing management driving asset yield, we are positive on CMT with an added avenue for growth now, leveraging on exposure to China retail property sector through CRCT. Therefore we upgrade our recommendation from Hold to Buy, TP S$ 3.30 based on our new sum-of-parts valuation for CMT.

Acquisitions priced in

3Q06 distribution income in line, DPU kicker in 4Q06. CMT delivered DPU of 2.85 cents for 3Q06 and 8.34 cents YTD, which translates into annualized DPU of 11.31 cents and 11.12 cents respectively. 3Q06 gross rental revenue rose 38.2% to S$82.1m YoY, led by contributions from Bugis Junction and Jurong Entertainment Centre that were acquired on 31 Oct 2005, one month contribution from the acquisition of Raffles City and 4% organic growth. Distributable income rose 34% YoY from the flow through from revenue growth to S$41.2m. Of note, S$4.2m of taxable income available for distribution was retained in 1Q06 due to intensive asset enhancement works. However, CMT is committed to distribute 100% of taxable income for FY06. Therefore we expect a kicker DPU of 0.27 cents for 4Q06, or annualized 42 bps yield enhancement.

Recap on acquisitions. To recap, Capitaland had previously announced that a China REIT listing was likely at the end of FY06 with an initial asset size of S$800m comprising 7 assets. CMT will be offered 20% stake in the China REIT, which is likely to be more yield accretive due to higher risk premiums placed on China assets. Currently CMT has a 27% stake in CapitaRetail Singapore Fund (CRS), which securitized Lot One Shopper’s Mall, Bukit Panjang Plaza and Rivervale Mall. The asset securitization structure is likely to be unlocked by 1H07, when the S$558m portfolio with average yield of 6.1% currently would be injected into CMT. Capitaland is currently developing Orchard Turn, a prime site in the main Orchard Shopping belt, into a mixed residential and retail development in an equal JV with Sun Hung Kai properties. The c. S$2bn project is likely to TOP in end of FY08 before Christmas and provide another further pipeline for CMT in the long term to meet its objective of S$7bn AUM by FY09, up S$1bn from S$6bn in FY08.

Revised target price to S$ 2.75 but downgrade to Hold with potential acquisitions priced in. After the acquisition of Raffles City that brought CMT’s AUM of S$4.3bn, we incorporated acquisition assumptions for CMT to achieve AUM of S$7bn. Based on DCF valuation, we derive a fair value of S$2.75. However, we are downgrading our recommendation for CMT to Hold from Buy following the 22% price appreciation over the past three months after positive news flow from acquisitions with upside looking limited at current price levels. Key risk to our recommendation would be yield accretion higher than our assumed NPI yield of 5% from acquisitions.

Extracts fm SGX Announcement,

Close of ATM Offering

CapitaMall Trust Management Limited, as manager of CMT (the “Manager”), is pleased to announce that:

(a) due to strong interest from retail investors, the size of the ATM Offering has been increased to 13,044,000 New Units;

(b) the initial 8,696,000 New Units under the ATM Offering representing gross proceeds of S$20.0 million have been fully taken up within 4 minutes of the opening of the ATM Offering at 12.00 p.m. today; and

(c) the subsequent 4,348,000 New Units under the ATM Offering representing additionalgross proceeds of S$10.0 million have been fully taken up within 45 minutes of theopening of the ATM Offering.

They will spend up to $86m to add 200,000 sq ft of net retail space

MULTI-MILLION-DOLLAR plans are underway to increase the net lettable area at Raffles City, say new owners CapitaMall Trust (CMT) and CapitaCommercial Trust (CCT)In March, the trusts agreed to pay $2.1 billion for the complex which includes an office tower, hotels and a retail mall. CCT and CMT will now pump in between $64-86 million to create up to 200,000 sq ft in additional net lettable area (NLA).

In statements released yesterday, CCT and CMT said the estimated net increase in rent due to the increased retail NLA is expected to range between $10-15 per sq ft per month. This is expected to translate into a net increase in gross rental income of about $18-36 million per annum. Assuming an operating margin of 70 per cent, the estimated increase in net property income could be between $12.6-25.2 million per annum.

The new owners also expect the ungeared return on investment to be between 20-29 per cent.

About 2.2 million people visit the retail component of Raffles City every month already. CCT and CMT now hope to further strengthen the retail offering at Basement One and create two additional levels of retail space at Basements Two and Three of Raffles City. This will take advantage of an intended link to the proposed Esplanade MRT station on the Circle Line MRT system targeted for 2010. There is also a possibility of constructing a link which could provide direct access from the City Hall MRT station.

The retail component of Raffles City, which takes up about 15 per cent of the complex, is expected to contribute 43 per cent of the net property income. The required additional gross floor area (GFA) can be derived from either hotel commercial GFA, office GFA, or other commercial GFA.

The completion of the Raffles City acquisition is targeted for Sept 1.

The two trusts will sell $866 million of bonds to help fund its purchase. It is understood that HSBC Holdings will be marketing the bonds, which are also backed by Raffles City, in Hong Kong, London and Frankfurt.

Standard & Poor's rating services said it has assigned a preliminary credit rating of 'AAA' to a $670 million portion of the bonds. The other two parts - a $60 million and a $136 million portion - were not rated.

CAPITAMALL Trust (CMT), which currently owns about 14 per cent of private retail property stock in Singapore, is gunning for a bigger share of 30 to 40 per cent. However, it did not give a timeframe for achieving this. The trust owns nine malls here and is in the midst of acquiring 40 per cent of the Raffles City retail, office and hotel complex.

It yesterday posted a 26.2 per cent year-on-year increase in Q2 distributable income to $38.3 million, on the back of a one-third jump in gross revenue to $76.5 million, due largely to contribution from four new malls. First-half distributable income rose 26.1 per cent to $75.85 million. The latest Q2 performance was also 0.3 per cent better than the trust manager's forecast in a circular last month. CMT is paying distribution per unit of 2.77 cents for Q2, which works out to 11.11 cents on an annualised basis, reflecting a 5.1 per cent distribution yield based on CMT's $2.19 closing price yesterday.

'Today, we are the most dominant player in the Singapore marketplace and I am not buying enough (malls). We have only 14 per cent stake of the total private retail stock in Singapore and, and there's still scope for us to grow,' CapitaMall Trust Management Ltd CEO Pua Seck Guan said yesterday. When asked later about the target share he's eyeing for CMT, Mr Pua said: 'If you look at a successful dominant retail Reit operator in established overseas markets, its share could be anywhere from 30 to 40 per cent.'

With the Raffles City acquisition, CMT's asset size will grow from $3.5 billion to $4.3 billion by next month, and it is on target to further increase this figure to $7 billion in Singapore by 2009.

The trust is preparing equity and debt raising to help fund its nearly $890 million share of the more than $2 billion joint acquisition of the Raffles City complex with CapitaCommercial Trust. CMT will use debt to invest up to $100 million for a stake of up to 20 per cent in parent CapitaLand's China retail Reit. The latter, which will own seven assets totalling more than $800 million, is slated for listing here by the year-end.

Asked about the impact of recent measures by the Chinese government to tighten property investment by overseas investors in China, Mr Pua, who is also CEO of CapitaLand Retail, said the measures are aimed at eliminating speculation and, in the process, will reduce competition for CapitaLand when buying China malls. In any case, CapitaLand has been complying with the rules in investing in retail malls in the country, he added.

Mr Pua also revealed that three malls owned by CapitaRetail Singapore - a private fund set up by CMT's parent CapitaLand and in which CMT has a stake - are likely to be injected into CMT in the first half of next year. CMT has the right of first refusal to buy the three malls - Lot One in Choa Chu Kang, Bukit Panjang Plaza, and Rivervale Mall in Sengkang.

CMT also revealed it had been successful in securing an increase in Jurong Entertainment Centre's plot ratio - which specifies the maximum gross floor area permitted to be developed on a site - from 1.85 to 3.0. Likewise, for Hougang Plaza, the plot ratio has been raised from 1.4 to 3.0. These pave the way for asset enhancement works.

Highlighting CMT's track record since its listing in July 2002, Mr Pua said annualised distribution per share payouts to shareholders have grown nearly 64 per cent - from 6.78 cents in 2002 to 11.11 cents for this year. Yield-accretive acquisitions accounted for 49 per cent of this growth, followed by asset enhancement/reconfiguration (22 per cent) and 'active leasing' efforts (19 per cent). The trust is expected to invest capital expenditure including asset enhancement works of more than $160 million in total for this year and next year.

Acquisition update

Story: To recap, CCT and CMT has announced the acquisition of Raffles City through a 60%-40% JV for a total acquisition price of S$2.166bn. The NPI yield of the acquisition translates to projected annualized yield of 4.9% and 5.1%, for 2006 and 2007, respectively. The acquisition is expected to be completed by 3Q06 and contribute approximately 4 months to FY06 distribution income.

Point: CMT has issued a circular to shareholders to propose up to S$420m of equity raising to part finance the Raffles City acquisition. CMT has proposed to finance the acquisition initially by long-term debt in the range of S$487-660m and the balance by short term debt.

Relevance: With the Raffles City acquisition, CMT’s asset portfolio will reach S$4.2bn, and it is on track to reach its target of S$5.0bn to S$6.0bn assets under AUM by 2008. Assuming S$420m equity raising, we revise our DPU estimates to S$11.55 cents and S$13.56 cents respectively for FY06 and FY07. Based on DCF valuation, we derive our 1-year target price of S$2.53 per unit for CMT.

Results above forecast but Q1 payout lowered to 90% - 1Q06 net profit came in at $41.8m (DPU: 3.02cts), 11% above forecast and up 40% yoy on a 6% better than projected revenue of $76.7m, boosted by better performance across its expanded portfolio of malls. However, distributable income rose a smaller 26% to $37.6m (DPU: 2.72cts) as the group lowered Q1 payout ratio to 90% of earnings. This is for prudent reasons in view of vacancy voids and interest servicing costs due to its aggressive asset enhancement pipeline. For the full year, CMT is still committed to pay out 100% of earnings.

Earnings growth from higher rents - Tampines Mall, Junction 8, Funan IT Mall, Plaza Singapura, Bugis Junction and Jurong Entertainment Centre, all which are close to full occupancy, continued to benefit from rising rentals. In Q1, 0.1msf of leases (3.5% of total NLA) were renewed at an average 10% above preceeding levels. In addition, there was higher income from IMM Building as a result of rescheduling enhancement works to Mar 06.

Enhancement initiatives to bear fruit in medium term - As part of its value-enhancing initiatives, the open-air carpark at IMM Building would be relocated to level 5 and a retail extension block would be constructed. This move, scheduled to complete in Q3, is expected to boost revenue by $6m pa when completed. In addition, the group has obtained permission to increase the plot ratio at Hougang Plaza from 1.4x to 3x or add a further 91000sf to its portfolio. These activities should boost value and earnings in the medium term.

$6b portfolio target still intact - It has proposed to buy 40% of Raffles City, which would expand its asset base to $4.3b, in line with its target to growing to $6b by 2008. CMT has obtained an A2 credit rating and can leverage beyond the present 32% to maximise returns from the new buys. We believe the Raffles City deal would be marginally accretive as the projected property returns of 4.9-5.1% in FY06 and FY07 are slightly higher than CMT’s present implied yield of 4.6%.

Maintain Hold with price target of $2.62 - CMT is currently offering FY06 and FY07 yield of 4.9-5.3%. Our price target of $2.62, which is based on an enlarged asset base of $6b, indicates a 9% upside. Maintain Hold.

BT, Published April 26,

2006 RESULTS CMT's Q1 distributable income jumps 26% 

CAPITAMALL Trust (CMT), which owns shopping centres like Bugis Junction, Tampines Mall and IMM Building, has posted first-quarter distributable income of $37.6 million, up 26 per cent from the corresponding period last year. Revenue for the three months ended March 31, 2006, jumped 38.9 per cent to $76.7 million.

The revenue surge was due largely to revenue of $17.6 million from four newly acquired malls - Bugis Junction, Hougang Plaza, Sembawang Shopping Centre and Jurong Entertainment Centre. In addition, the trust's existing five malls accounted for another $3.9 million increase in revenue due mainly to new and renewal leases.

CMT has decided to distribute 90 per cent of its Q1 income to unit holders, although it is still sticking to a 100 per cent distribution policy for the full year. The reason for the lower payout for Q1 is a prudential one, to create a pool of funds that should help negate the impact of fluctuations in operational cashflow in the coming quarters due to significant asset enhancement works and higher interest expenses.

Moody's has assigned CMT an A2 rating, the highest ever assigned to a Singapore-listed Reit, said Hsuan Owyang, chairman of CapitaMall Trust Management Ltd (CMTML), the manager of CMT.

The trust's Q1 distributable income of $37.6 million was 0.3 per cent higher than the forecast in its circular in October last year. Distribution per unit for Q1 is 2.72 cents, which represents a 10.1 per cent improvement from the corresponding year-ago period and a 0.3 per cent increase above forecast. While CMT's gross revenue for Q1 was 5.6 per cent above forecast, the trust also chalked up higher property operating expenses and administrative expenses than what it had forecast. CMTML said it is optimistic about delivering its full-year 2006 DPU forecast of 11.04 cents to unitholders.

CMTML's CEO Pua Seck Guan said CMT's proposed 40 per cent interest in Raffles City complex will boost the trust's asset size from $3.4 billion to $4.3 billion. He also revealed that the Urban Redevelopment Authority has granted the trust an outline planning permission to increase the plot ratio of Hougang Plaza from 1.4 to 3.0 for full residential development or mixed development. CMTML will re-evaluate its proposed asset enhancement plans for the complex.

Extracts fm DBSVickers Report dated 27-Jan-06,

Bright prospects

Capitamall Trust (CMT) announced a FY05 DPU of 10.23 cents (DBSV: 10.21 cents). FY05 distributable income rose 19.5% y-o-y to S$127m, due mainly to the acquisitions of Sembawang Shopping Centre (SSC), 96.7% of the strata area in Hougang Plaza (HP), Bugis Junction (BJ) and Jurong Entertainment Centre (JEC). CMT’s long-term prospects remain bright. Over the next 3 years, CMT’s earnings growth will come from enhancement initiatives on its various properties. It will continue to actively pursue acquisition targets, as it has raised its target asset size to S$5-6bn by end 2008. Its incubator fund, the S$560m CapitaRetail Singapore Fund, will be lined up for injection into CMT in 2007. Our target price of S$2.91 is based on DCF valuation. Maintain BUY

• 4Q05 results. Post-equity raising, DPU for 31 Oct 05 - 31 Dec 05 was 1.87 cents, or 11.02 cents annualized. This is 8.9% higher than 3Q05’s annualized DPU of 10.12 cents. DPU should continue to strengthen with lease renewals and asset enhancement initiatives.
  
  
• Upside catalysts. Over the next 3 years, CMT’s major DPU growth driver will likely be its asset enhancement to IMM and its 3 recent acquisitions, HP, SSC and JEC. The asset enhancement initiatives could add S$21m in incremental revenue over the next 3 years, and fuel a 26% increase in DPU. CMT already has a “AAA” credit rating - it can raise its gearing to 60%. But management indicated it would be comfortable with 40-50% gearing. With 32% gearing currently, CMT could acquire up to S$800m in assets if it increases its gearing to 45%, without dilution from new equity.
  
  
• Valuation. Our target price is based on DCF valuation of S$2.91 per unit. Our yieldspread model, implying a 4.5% yield, imputes a value of S$2.76 per unit. It is lower because it does not impute continued strong DPU growth in 2008 and beyond. We have not included acquisition assumptions. Maintain BUY.

Extracts fm SGX Announcement dated 27-Oct-05,

The Preferential Offering

The Board of Directors of CapitaMall Trust Management Limited, as manager of CMT (the “Manager”), wishes to announce that, as at the close of the Preferential Offering on 25 October 2005, valid acceptances for a total of 29,746,224 New Units under the Preferential Offering were received.

New Units that were not accepted by Relevant Singapore Registered Unitholders, or in respect of which invalid acceptances were received, constituted the remaining 47,882,757 New Units under the Preferential Offering. The Joint Lead Managers and Underwriters will procure subscribers for or subscribe for themselves any unallocated New Units.

KK wrote:

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Extracts fm SGX dated 26-Oct-05,
The Board of Directors of CapitaMall Trust Management Limited, as manager of CMT (the “Manager”), wishes to announce that as at the close of the ATM Offering at 12 noon on 25 October 2005, 2,175 valid applications have been received for 12,475,000 of the 25,500,000 New Units offered under the ATM Offering. DBS Bank Ltd, the lead manager and underwriter for the ATM Offering, will subscribe for the remaining 13,025,000 New Units.

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Extracts fm CitiGroup Report dated 19-Oct-05,

• Raising S$405.9m to part fund acquisition of 4 malls — Parco Bugis Junction, Jurong Entertainment Centre, Sembawang Shopping Centre, Hougang Plaza
  
• The S$405.9m will be raised through issuance of 77.6m new shares via 1-for-10 non-renounceable preferential offering, 25.5m via ATM and 70.3m via private placement. New units will be ranked pari passu with existing units
  
• New units will be offered at S$2.35/share (deducting accrued distribution of S$0.035 for 1 Jul to 30 Oct) and preferential offering will be priced at S$2.33/share (0.85% discount). Capitaland does not intend to subscribe to the new units; free float will increase from 61.3% to 66.2% 
  
• Separately, CMT to pay Seiyu S$25m for surrender of 74,299sf of NLA at Parco Bugis and S$1m in other expenses, bringing in additional net property income of S$3.16m a year for CMT. There will be DPU accretion of 0.17 cents and 0.16 cents for FY05 and FY06, and property yield will increase to 5.3% from 5.0%, according to management
  
• CMT has also received approval to convert 45,267sf of residential to retail GFA for Sembawang Shopping Centre
  
• CMT will take additional financing of S$433m, taking gearing to 32.3%
  
• Retain Hold (2L). Of the REITs, we prefer CCT (CACT.SI, 1L, S$1.58) for its quality assets, exposure to the office sector; and AREIT (AEMN.SI, 1L, S$2.08) given its strong position to grow via acquisitions