CIMB Research maintains Outperform on CMMT, target price RM1.65

KUALA LUMPUR (April 20): CIMB Research has maintained its Outperform recommendation on CapitaMalls Malaysia Trust (CMMT) at RM1.38 with a target price of RM1.65.

In a note Friday, CIMB Research said that at 25% of the research house’s our full-year estimate CMMT’s 1Q12 results were within expectations, helped by the first full quarter of contribution from East Coast Mall, asset enhancement initiatives for Gurney Plaza and higher rental rates for renewed leases.

“We continue to use DDM to value CMMT. The stock remains an Outperform as it is well-supported by attractive yields of >6%. CMMT is our top pick among the REITs.

“Rerating catalysts are 1) a potential >23% increase in NLA for East Coast Mall, and 2) asset enhancement initiatives,” it said.



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Stocks to Watch Bursa, China Stationery, UMW, CMMT, Naim

KUALA LUMPUR (April 19): Economic and political factors, besides weakening technical indicators, could dictate the direction of Malaysian stocks on Friday, as investors evaluate the impact of global economic data against domestic pre-election sentiment.

Analysts said the on-going European debt crisis and slower growth in China, apart from the anticipation of Malaysia's coming general election, could lead to persistent selling pressure in the FBM KLCI.

The FBM KLCI of 30 stocks erased earlier gains to finish in the red at 1,596.62, down 2.24 points on Thursday.

Stocks to watch on Friday are BURSA MALAYSIA BHD [], China Stationery Ltd, UMW HOLDINGS BHD [], Capitamalls Malaysia Trust (CMMT) and Naim Holdings Bhd.

Bursa posted flat profit growth in the first quarter (1Q), as the stock exchange operator's lower operating expenses mitigated the impact of less revenue during the period. Bursa said its net profit rose 0.7% to RM40.77 million in the quarter ended March 31, 2012 from RM40.49 million a year earlier, while revenue fell 4.8% to RM110.52 million from RM116.11 million.

Regulators have queried China Stationery on the unusual trading patterns of the company's shares. The company said it was not aware of any factors contributing to the rise in the price and volume of the stock. China Stationery also said it had no plans to declare an interim dividend nor undertake a dual listing in Hong Kong.

AmResearch Sdn Bhd had raised its earnings forecast for UMW, an automotive and oil and gas support services entity, by up to 25% for financial years ending Dec 31, 2012 to 2014. AmResearch also revised upwards its target price for the stock by 31% to RM8.90 from RM6.80, and upgraded the shares to a "buy" from "hold".

CMMT's 1Q net profit rose 10% from a year earlier, as the retail-based Real Estate Investment Trust (REIT) registered higher revenue, following the inclusion of the East Coast Mall in Kuantan to the group's portfolio. CMMT said net profit came to RM34.44 million against RM31.44 million previously, while revenue was up 36% to RM71.4 million from RM52.68 million.

Real estate developer and builder Naim is diversifying into the healthcare business via a collaboration with KPJ HEALTHCARE BHD []. Both Naim and KPJ will set up a joint venture company on 30% and 70% basis respectively to construct and operate a hospital in Miri, Sarawak.



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CMMT 1Q profit up 10%

KUALA LUMPUR (April 19): Capitamalls Malaysia Trust's (CMMT) first quarter net profit rose 10% from a year earlier as the retail-based Real Estate Investment Trust (REIT) registered higher revenue following the inclusion of the East Coast Mall in Kuantan to the group's portfolio.

In a statement to the exchange on Thursday, CMMT said net profit came to RM34.44 million against RM31.44 million previously, while revenue was up 36% to RM71.4 million from RM52.68 million.

Its portfolio includes Sungei Wang Plaza and The Mines in the Klang Valley, besides Penang's Gurney Plaza. The property trust plans to reward shareholders with a dividend of 2.09 sen a unit during the quarter.



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MIDF Research starts coverage on CMMT with Neutral rating, target price RM1.51

KUALA LUMPUR (April 18): MIDF Research has initiated coverage on Capita Malls Malaysia Trust (CMMT) with a Neutral recommendation, setting a target price of RM1.51 based on the Gordon Growth Model (Required rate of return: 8.20%, perpetual growth rate: 3%, forward DPU: 7.9 sen).

In a note Wednesday, the research house said that in the longer term, CMMT had strong growth potential by leveraging on its sponsor’s management expertise, extensive network of tenants and potential yield-accretive asset injection.

“Even though the 5.7% distribution yield of CMMT in FY12 was much lower as compared to the sector average of 7.03%, investor will be compensated by higher free float (in absolute value) as well as more resilient earnings growth,” it said.



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Maybank IB ups target price for CapitaMalls to RM1.37

KUALA LUMPUR (Jan 25): Maybank Investment Bank Bhd Research has maintained its Hold call on CapitaMalls Malaysia Trust (CMMT) and raised its target price to RM1.37 from RM1.34.

In a note Wednesday, Maybank IB Research said CMMT’s 2011 realised net profit of RM110.9 million came in as expected, adding that 2011 dividend per unit (DPU) of 7.9sen was also in line.

“CMMT has grown its asset size by 31% to RM2.8 billion since its listing in July 2010 with the Gurney Plaza Extension and East Coast Mall (ECM) acquisitions.

“Potential earnings catalysts could come from the reconfiguration of outdoor car park lots at ECM into retail spaces. Hold,” it said.



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Capitamalls Malaysia Trust 4Q earnings up 60.4% to RM45.11m

KUALA LUMPUR (Jan 20): Capitamalls Malaysia Trust (CMMT) earnings rose 60.4% to RM45.11 million in the fourth quarter ended Dec 31, 2011 from RM28.11 million a year ago.

It said on Friday revenue increased by23.2% to RM63.14 million from RM51.25 million. Its earnings per share were 2.75 sen compared with 2.08 sen.

CMMT said the higher revenue was due to the acquisitions of the Gurney Plaza Extension on March 28, 2011 and East Coast Mall, on Nov 14, 2011, which collectively accounted for RM9.4 million increase in gross revenue for the current quarter.

The other malls accounted for another RM2.5 million increase in gross revenue as a result of higher rental rates achieved from new and renewed leases.

As for property operating expenses in 4Q11, there was a 23.2% increase or RM3.6 million to RM19.4 million over 4Q10.

Overall, distributable income to unitholders for 4Q 2011 was RM32.8 million which was RM8.0 million or 32.3% higher compared to 4Q 2010.

For the financial year ended Dec 31, 2011, its earnings increased by 64.3% to RM179.81 million from RM109.39 million in FY10. Its revenue recorded a 144% increase to RM230.88 million from RM94.63 million.



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Retail-focused REIT fairly resilient

The listing of Pavilion REIT earlier this month is likely to have attracted more investor interest to the entire asset class. Real estate investment trusts (REIT) are widely regarded as relatively defensive investing options, which would be appealing under the prevailing uncertainties over the health of the global economy.

To be sure, a prolonged and severe economic downturn may eventually affect property prices and rental incomes. On a positive note, the property sector rode out the 2008 global financial crisis none the worse for wear. Indeed, many of the listed REIT continued to recognise revaluation gains on their portfolio of assets during this period.

Hence, while there could emerge some rental pressure in select segments of the market, the office segment for instance, overall expectations for property prices remain on a fairly even keel for now. That said, most market observers are fairly upbeat on the prospects for retail properties, particularly for shopping malls that are well managed in choice locations, on the back of expectations that domestic consumer spending will continue to expand.

Hektar proposes new acquisition
Hektar REIT (RM1.30) is one of the earliest REIT to be listed on Bursa Malaysia — back in December 2006 — and the first that is focused on properties used primarily for retail purposes.

Its initial portfolio consisted of two suburban shopping malls, Subang Parade in Subang Jaya and Mahkota Parade in Malacca. Wetex Parade in Muar was added to the trust’s portfolio in 2008. The three investment properties — with total net lettable area of some 1.1 million sq ft — are valued at a combined RM752 million. The average occupancy rate stood at 95.5% at end-2010.


Earlier this month, Hektar proposed to add two other shopping malls to its portfolio - the Landmark Central Shopping Centre in Kulim and Central Square Shopping Centre in Sungai Petani, Kedah. The shopping malls are valued at a combined RM181 million and have net lettable area totalling some 582,000 sq ft. Upon completion, Hektar’s total investment properties will rise to roughly RM933 million.

To part-finance the purchase, Hektar has proposed a rights issue to raise some RM98.4 million. Based on the current unit price, the rights issue will
likely be on a basis of about one-for-four.

The proposed acquisition is expected to be finalised by 2Q12. Post-acquisition, Hektar’s gearing is estimated at around 44% while net asset value (NAV) is estimated at about RM1.29 per unit. Total units in circulation will expand to about 400 million.

Hektar has made three interim income distributions of 2.5 sen per unit each so far this year. Assuming the same level of income distribution as 2010, totalling 10.3 sen per unit, yields are estimated at 7.9% at the current price.

This is higher than yields for the three other retail-focused REITs currently listed on the local bourse, Sunway REIT, CMMT and Pavilion REIT, based on prevailing prices. This could be attributed in part to the relatively larger asset sizes and liquidity for its peers. Indeed, the more recent listings of the similar and larger retail-focused REITs have taken attention away from Hektar.

Newly acquired assets to start contributing positively for Sunway REIT
Sunway REIT remains the largest listed REIT on the local bourse in terms of total assets. Following the successful acquisition of Putra Place, its portfolio of assets has expanded to 11, from eight upon listing in July 2010, valued at a combined RM4.38 billion.

Sunway REIT acquired the three properties, The Mall, Putra Place office tower and the former Legend Hotel, in a public auction in April 2011. However, due to a legal wrangle with the former owner, the trust did not secure full possession and control of the properties until end-September. As a result, earnings in the past two quarters were weighed down by higher expenses, which included interest costs and legal fees, with losses totalling some RM6.6 million.

Now that the issue has been resolved, Sunway REIT expects positive contributions from its latest acquisition for the current financial year ending June 2012. Occupancy for Sunway Putra Mall stood at about 66% at end-September, and is expected to rise to some 82% upon the completion of new leases with the remaining occupants. Meanwhile, the master lease agreement for Sunway Putra Hotel has been finalised and the hotel will start to contribute in the current quarter under new management. Occupancy at Sunway Putra Tower averaged at 90.4% for the quarter ended September 2011, which the property manager expects will inch higher over the next few months.

Thus, we should see improved incomes for Sunway REIT. The trust made a first interim income distribution of 1.75 sen per unit in November. Assuming total income distribution of roughly 7.2 sen per unit for FY12, investors will earn yields of 6.4% at the current price of RM1.13.

With gearing at just about 35%, below the industry guideline of 50%, Sunway REIT’s balance sheet is relatively healthy and would give the trust room to for additional leverage for future acquisitions.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, December 21, 2011.



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CMMT considering rights issue

KUALA LUMPUR: CapitaMalls Malaysia Trust (CMMT), a unit of Singapore’s CapitaLand Ltd, is considering a rights issue to boost its coffers as it seeks to bulk up on more retail assets here.

Sharon Lim, CEO of CMMT’s manager, CapitaMalls Malaysia REIT Management Sdn Bhd (CMRM), said the REIT is engaging regulators and merchant bankers to assess the feasibility of a cash call, having already done two rounds of unit placements that raised a total of RM483.55 million this year.

“We have always looked at the possibility of doing a rights issue,” she told The Edge Financial Daily in an interview, adding that the exercise allows it to tap funds from its existing retail and institutional unitholders.

To be sure, making a cash call amid current market uncertainties risks putting off existing unitholders, especially retail investors who may be less keen on forking out more money. “People invest in property trusts for the generous dividends. It is likely they would not like cash calls, which means they need to fork out money instead of getting dividends,” said a market observer.

That said, it is likely that if CMMT decides to make a rights issue, the decision would come with plans that would demonstrate the REIT’s ability to deliver even better returns to unitholders in future. “It is not likely to be a pre-emptive cash call. I’d expect them to have some plans in place to tell unitholders,” the observer added.

If it happens, the rights issue would be CMMT’s first since its IPO in July 2010. Notably, while the issuance of new units in placements dilutes the stakes of existing holders, the exercise could bring strong institutions to its list of unitholders. The Government of Singapore Investment Corp, for instance, emerged as a substantial unit holder in CMMT in October after acquiring 5.64% of CMMT via a private placement, filings with Bursa Malaysia showed.

Lim declined to specify growth targets for CMMT’s total asset base, only indicating that its parent CapitaLand‘s expansion strategy entails doubling its asset size every three to five years. Using that as a benchmark, CMMT could see its assets double to about RM5.6 billion within five years.

CMMT now has four retails properties in its portfolio which is includes The Mines
shopping centre in Selangor and Sungei Wang Plaza in Kuala Lumpur.

She also pointed out that CMMT would grow via organic means apart from acquisition of more retail properties. Organic expansion is in the form of refurbishment of existing properties to maximise rental income.

With the inclusion of the East Coast Mall, CMMT now has four retail properties in its portfolio which includes Gurney Plaza in Penang, Sungei Wang Plaza in Kuala Lumpur and The Mines shopping centre in Selangor. Following its latest unit placement and asset acquisition, the property trust’s total asset base is now valued at some RM2.8 billion, compared with about RM2.1 billion when it was listed on the Bursa Malaysia Main Market last July.

On existing malls, CMMT had refurbished Gurney Plaza where car park lots were converted into new shops. It had also renovated Sungei Wang Plaza and The Mines.

Geographical diversification features prominently in CMMT’s expansion. Looking ahead, Lim said the property trust is considering acquiring retail assets in Sabah, Sarawak and Johor. That is provided the target properties can offer sustainable rental income and growth prospects within a good catchment area.

Of interest is CMMT’s strategy of acquiring malls not only in prime areas such as the Klang Valley and Penang but also in smaller towns. A case in point is the recent purchase of East Coast Mall in Kuantan, Pahang. In less prime locations, Lim said CMMT would opt to acquire a key retail centre which is seen as” the mall” frequented by locals within the area.

In terms of targeted returns from the properties it acquired, CMMT is expecting net property income (NPI) yields of between 6% and 7%, derived from dividing its NPI by the market value of its properties, Lim said.

On annual growth, she said CMMT aims to grow its distributable net profit and dividend per unit (DPU) by between 4% and 5% a year, which is higher than the country’s inflation rate. But that’s a conservative target assuming that the property trust embarks purely on organic growth.

CMMT, which pays dividends on a semi-annual basis, is targeting a DPU payout of not less than 7.46 sen in the current year ending Dec 31. It intends to distribute 100% of its distributable income in FY11.

The property trust had paid out cumulative DPU of 3.9 sen for the first nine months of the year, translating into an annualised figure of 7.8 sen. This works out to a 5.7 % yield based on its closing price of RM1.35 last Friday, which valued CMMT at RM2.38 billion. CMMT has gained 21% this year versus the FBM KLCI’s 6% decline.

As at Sept 30, CMMT had debt obligations of RM839.8 million compared with total assets of RM2.57 billion, translating into a gearing of 33%. With the inclusion of the RM310 million East Coast Mall, CMMT’s total assets have increased to about RM2.8 billion, which bring gearing down to 29%. That gives it some headroom to gear up, should it choose to, given a debt ceiling of 50% of total assets.

Lim said CMMT would still be comfortable with a gearing of 40%. And should its debt level near the prescribed 50% limit, she said the property trust would issue new equity to raise funds to lower its gearing.


This article appeared in The Edge Financial Daily, November 29, 2011.



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No surprise from CMMT, Axis REIT

CapitaMalls Malaysia Trust (CMMT) was among the first real estate investment trusts (REIT) to report 3Q11 earnings. The trust continues to fare well, with distributable income for the year to date slightly ahead of the forecast made in its prospectus for listing back in July 2010.

Gross revenue totalled RM57.8 million in the latest 3Q11, including contributions from the extension of Gurney Plaza. Acquisition of the latter was completed at end-March this year. Income available for distribution for the quarter stood at RM29.8 million, bringing the total for the year to date to RM85.6 million.

Contributions from all three shopping malls in CMMT’s portfolio were steady. Occupancy ranged from 98.4% for Sungei Wang Plaza to 98.6% for Gurney Plaza and 99% for The Mines. The average occupancy in 3Q11 stood at 98.7%, not varying much from the 98.7% to 99.1% recorded in 1Q11 to 2Q11 respectively. The trust also maintained positive rental reversion of about 6.7% for leases renewed so far this year.

Gross yield for CMMT estimated at 6%
At the current pace, CMMT is on track for our estimated income distribution totalling roughly 7.85 sen per unit for the year, of which 3.9 sen per unit has already been paid earlier. CMMT will trade ex-entitlement for another distribution of 2.83 sen per unit on Nov 8. The total distribution translates into a gross yield of about 6% at the prevailing unit price of RM1.31 — a fairly attractive return compared with prevailing bank deposit rates.

Earnings for REITs are fairly defensive, although they are still exposed to economic cycles to varying degrees depending in part on the type of properties (and their locations) in the portfolio. For instance, well-managed shopping malls carry relatively lower risks, compared with say, the commercial office market, which may suffer on forecasts of excess supply. Consumer spending, on the other hand, is expected to stay quite resilient.



CMMT is managed by a joint-venture company between CapitaMalls Asia, which is listed on the Singapore Stock Exchange and one of Asia’s largest shopping mall developers, owners and managers, and Malaysian Industrial Development Finance Bhd.

Premium for size and liquidity
The trust’s three investment properties — with net lettable area of more than two million square feet — are valued at RM2.43 billion. Its book value stood at RM1.06 per unit (after taking into account the as yet unpaid income distribution for 3Q11). Thus, at the current price, CMMT is trading at more than 1.2 times book value.

We believe this premium is attributable in part to its relative size and liquidity. It is the largest listed retail-focused REIT on the local bourse with assets and market capitalisation that are second only to Sunway REIT.

CMMT is in the midst of acquiring the East Coast Mall in Kuantan for RM330 million. The acquisition is slated for completion by end-2011. The four-storey mall with net lettable area of about 440,000 sq ft was completed in 2008 and currently has occupancy of about 97%. The acquisition will be funded by the issuance of 262 million new units priced at RM1.26 each.

We forecast that CMMT will be able to maintain income distribution at roughly 7.9 sen per unit in 2012, assuming a 100% payout based on our forecast earnings and enlarged units in circulation.

Axis continues to expand portfolio
Axis REIT, on the other hand, has a slightly more diversified portfolio of assets with properties in the office, logistics and retail warehouses as well as office/light industrial segments.

Axis has been among the most active REITs in terms of expanding its portfolio. From the initial five properties (on its listing back in August 2005), its portfolio now consists of 27 properties valued at a combined RM1.26 billion with an average occupancy of 96.8% in 3Q11.

A total of five properties were acquired in 2010, including two logistics warehouses in Seberang Prai, Tesco Hypermarket in Johor, Axis PDI Centre and Axis Technology Centre.

For the current year, Axis completed the acquisitions of a logistics warehouse in Johor and an office building in Cyberjaya for RM81.3 million and disposed of the Axis North Port Logistics Centre for RM14.5 million.

It is currently in the midst of finalising the purchase of another logistics warehouse in Seberang Prai valued at RM59 million as well as a sale and leaseback of a three-storey office block and logistics warehouse from DHL Properties for RM48.5 million. With several other properties under assessment, we expect the trust will stick to its strategy of expanding portfolio in the foreseeable future.

Following the recent acquisitions, gearing has risen to 38.2% as at end-September, up from about 31.3% since its last placement exercise in 3Q10. To bolster its balance sheet and fund future purchases, Axis is planning to issue up to 75.2 million new units.

Gross yield estimated at 6.5%
We estimate income distribution to total roughly 17.2 sen per unit for the current year based on 100% payout, of which 13 sen has already been paid in the last three quarters. That translates into a gross yield of roughly 6.5% at the prevailing unit price of RM2.63. Axis is currently trading at about 1.34 times its book value of RM1.96 as at end-September.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, November 4, 2011.

Trading of Capitamalls Malaysia Trust suspended Friday afternoon

KUALA LUMPUR: Trading in the units of Capitamalls Malaysia Trust (CMMT) will be voluntarily suspended from 2.30pm on Friday, Oct 28.

A Bursa Malaysia Securities circular said on Friday the suspension was at the request of the management company of CMMT “pending an announcement”.

CMMT was unchanged at RM1.31 at midday.

REITs attractive in turbulent market

KUALA LUMPUR: As market volatility drive investors toward defensive stocks, real estate investment trusts (REITs) have come under renewed interest as investors look to reduce risk of capital loss and seek stable returns.

Among the Malaysian REITs that have seen better days since the global market selldown in early August are Sunway REIT (SunREIT), Axis REIT and CapitaMalls Malaysia Trust (CMMT).

The three REITs have seen higher volumes traded since late July with their respective unit prices hitting their peak in August, while still maintaining high level of interests recently.

This appears to coincide with the weak and volatile sentiment in markets worldwide that drove investors to the sidelines.

Yesterday, CMMT’s share price closed at RM1.30 (RM1.95 billion market cap), up from about RM1.02 in the beginning of the year. CMMT is a purely retail properties-based REIT while SunREIT’s portfolio comprises retail, hospitality and office properties.

SunREIT and Axis REIT closed yesterday at RM1.14 and RM2.46, respectively, giving them a market cap of RM3.07 billion and RM924.7 million. The former had gained about 10.7% year-to-date (YTD) while Axis was up about 3.8% YTD.

At yesterday’s prices, CMMT and Axis were traded at about 6% and 7.1% annualised yield for FY11 ending Dec 31, while SunREIT was priced at 5.8% historical yield for FY11 ended June 30.

Nevertheless, not all REITs have fared well, with some registering a drop in their unit prices YTD. While lower unit prices could mean higher dividend yield, note that some have returned flat or lower dividend payments.

Hektar REIT, which owns several small malls, saw its unit price falling 6.7% YTD to close at RM1.26 yesterday. While its annualised dividend yield was widened to 7.93% for FY11 ending Dec 31, its dividend payment for 1HFY11 was flat at five sen per unit.

The unit price of hospital-backed REIT Al Aqar KPJ REIT meanwhile has also fallen about 4.5% YTD to RM1.07 yesterday. The REIT recently distributed 5.17 sen as the first income distribution for FY11 ending Dec 31, despite earlier proposing to pay 3.3 sen.

UOA REIT, which owns several office blocks, had hit a six-month high of RM1.48 on July 26 before market pressures pushed down its prices to RM1.33 yesterday, falling about 11.3% YTD. UOA’s 1HFY11 dividend has dropped to 4.89 sen (annualised yield of 7.4%) from 5.15 sen previously.

Analysts stress that the two most important factors to consider when evaluating the prospects of a REIT are the property segment it occupies and its proposed expansion plan to grow value and dividend returns.

REITs backed by office properties are currently not the flavour of the month due to the oversupply of office spaces and consequently, an expected pressure on earnings growth.

Instead, many analysts prefer retail REITs particularly those that own quality retail malls in good locations.

Although retail REITs are still relatively attractive, analysts warn that this segment could in the longer term face higher supply and increased competition for tenants.

“Retail spaces should see some incoming supply but it will still be a better bet than office REITs,” said a property analyst.

Axis REIT has also been featured as analysts’ top picks for REITs who like its mix of office and industrial real estate.

“Aside from the industrial properties which we like, Axis REIT is secured by strong tenants and have an aggressive expansion plan,” said the analyst.

Maybank IB Research analyst Wong Wei Sum noted that some REITs are currently looking attractive due to their more stable income stream and dividend yield at an average of 6% to 7%.

Nevertheless, as REITs return to focus, a fund manager pointed out that the increased interest can mostly be attributed to funds but not retail investors.

“Retail investors largely lack an understanding of REITs but REITs is quite useful to have in your portfolio when the market is unpredictable,” he said.

This article appeared in The Edge Financial Daily, October 21, 2011.