Singapore REITs - UOB Kay Hian 2016-04-18: 1Q16 Results Of ART, CCT And CMT


REITs − 1Q16: Results Of ART, CCT And CMT 

  • CCT reported positive rental reversions and maiden contribution from CapitaGreen. Management’s focus is on tenant retention and sustained occupancies amid near-term supply headwinds. 
  • CMT reported healthy pick-ups in shopper traffic and tenant sales although annual rental reversion was the lowest in five years. 
  • ART saw a healthy performance in China despite the drag from its UK assets. 
  • Maintain OVERWEIGHT on the sector. 


  • CapitaLand Mall Trust (CMT), CapitaLand Commercial Trust (CCT) and Ascott REIT (ART) have reported their quarterly results. 

CapitaLand Mall Trust (CT SP/HOLD/Target: S$2.05) 

 Results in line; maintain HOLD and target price of S$2.05. 

  • 1Q16 DPU rose 1.9% yoy to2.73 cents. 
  • Gross revenue and NPI increased 7.4% and 8.6% respectively, mainly due to contribution from Bedok Mall and higher rentals from IMM building but partially offset by lower revenue from JCube. 
  • Earnings were within our expectations, accounting for 23.5% of our full-year forecast. 
  • Maintain HOLD and target price of S$2.05 based on DDM (required rate of return: 6.8%, terminal growth: 1.5%). 
  • Entry price is S$1.74. 

 Operational highlights. 

  • Shopper traffic increased 4.9% yoy with new leases/renewals achieving 1.4% yoy positive rental reversion in 1Q16 (2015: +3.7% yoy). 
  • Tenants’ sales psf increased 4.6% yoy. Overall occupancy rate stood at 97.7% in 1Q16. 
  • Gearing stood at 35.5% while borrowing costs remained relatively stable at 3.2%. 

 Pressure on rental reversions showed no signs of easing with 1Q16 reversions at 1.4% (2015: 3.7%). 

  • Portfolio rental reversion was at its lowest since 2009 due to negative reversions from Attrium at Orchard (-11.2%), Westgate (-12.9%) and JCube. 
  • The retail environment is expected to remain challenging due to increased supply, rising costs and threat from alternative retail channels. 

 AEI updates. 

  • Funan DigitaLife Mall will be redeveloped into a new-generation integrated development and leading lifestyle destination that befits its central location in the revitalised civic and cultural district. It is slated for closure in June this year and contributed 4.4% to portfolio NPI in 1Q16. 
  • We believe the acquisition of Bedok Mall in Oct 15 should offset the potential impact of Funan’s closure. 
  • AEI works at Tampines Mall, Bukit Panjang Plaza and the S$38m revamp of Plaza Singapura (expected completion: 4Q16) are still underway. 

 Challenging sector outlook despite healthy shopper traffic. 

  • Although shopper traffic and tenant sales increased 4.9% and 4.6% respectively this quarter, management had earlier hinted at possible negative rental reversions on a portfolio basis in some quarters ahead, citing the challenging leasing environment. 
  • Management’s focus remains on driving sustainable DPU growth with AEIs at Funan DigitaLife Mall, Plaza Singapura, Tampines Mall and Bukit Panjang Plaza as near-term focus. 

CapitaLand Commercial Trust (CCT SP/BUY/Target: S$1.79) 

 Results in line with expectations, at 23.5% of full-year forecast. 

  • 1Q16 DPU increased 3.3% yoy to 2.19 cents as share of JV profits increased 38.4% yoy from CCT's 40% stake in CapitaGreen. 
  • Gross revenue and NPI fell 1.9% and 3.6% yoy respectively, mainly due to lower gross rentals from Capital Tower and Golden Shoe Car Park. 
  • Maintain BUY and target price of S$1.79/share, based on DDM (required return: 7.2% and terminal growth of 1.7%). 

 Operational highlights. 

  • Overall occupancy rate reached 98.1% (4Q15: 97.1%), mainly attributable to higher occupancies at Capital Tower, One George Street, Six Battery Road and Golden Shoe Carpark. CapitaGreen is now 92.8% occupied (4Q15: 91.3%). Gearing increased 60bp qoq to 30.1%. Borrowing costs remained stable qoq at 2.5%. 

 Overall positive rental reversions

  • ..., with committed rents at One George Street up to 2.6% above average expired rentals. 
  • Six Battery Road saw up to 16% upside from average expired rents. One George Street achieved monthly rents of S$9.90-10.20psf, while Six Battery Road and CapitaGreen achieved monthly rents of S$11.00-13.00psf and S$11.56-12.15psf respectively. 

 Well spread-out lease expiry profile to tide out supply wave

  • ..., with a mere 6% and 10% of leases by NLA left for renewal respectively in 2016 and 2017. This puts the REIT manager in a more comfortable position for the next wave of supply due in 2H16 from Marina One (1.9m sf), Guoco Tower (0.9m sf) and Duo (0.6m sf). 
  • Already, Grade-A office rents have declined 13.2% from 1Q15’s peak of S$11.40psf pm, according to CBRE. 
  • Management acknowledged the headwinds facing the sector by implementing a well spread-out lease expiry profile and will prioritise retaining key tenants and high occupancies. 

 Further catalyst from acquisition of remaining 60% stake in CapitaGreen (at an estimated cost of S$952m) from CCT's JV partners. 

  • The latest quarter saw a 38.4% jump from share of JV profits mainly due to maiden contribution from CapitaGreen, ultimately contributing to DPU growth. Going forward, 2016 earnings should similarly be bolstered by CapitaGreen. 
  • With gearing at 39.1%, debt headroom of S$1.3b would more than suffice to exercise the call option to acquire the remaining 60% stake. As such, we have factored in the acquisition in 2H16. 

Ascott Residence Trust (ART SP/BUY/Target: S$1.36) 

 Results below expectations; 

  • Maintain BUY with a lower target price of S$1.36 (previously S$1.39), based on a two-stage dividend discount model (required rate of return: 7.9%, terminal growth rate: 1.6%). 
  • ART reported 1Q16 DPU of 1.75 S cents (-1% yoy). 
  • Gross revenue and gross profit increased 17% and 13% yoy respectively, mainly due to acquisitions in 2015. On a same-store basis, gross profit grew 4%. 
  • Results were below our and consensus expectations, coming in at 20% of full-year estimates. This was mainly due to lower-than-anticipated contributions from the UK and higher-thananticipated perpetual securities payout. 
  • We reduce our 2016 and 2017 net profit estimates by 3.4% to better reflect these factors. 

 Operational highlights. 

  • 1Q16 saw RevPAU increased 10% yoy to S$125, underpinned by stronger performances in Australia, China, Indonesia and Vietnam. On a same-store basis, RevPAU increased 1% yoy. Gearing slipped 0.4ppt qoq to 38.9%. 
  • Borrowing costs dipped to 2.5% (4Q15: 2.8%). About 30% of 2016 distributable income has been hedged. 

 Well-performing geographies include China and Australia, 

  • ...recording RevPau growth of 6% and 10% yoy respectively. Room rates at Somerset XU Hui Shanghai saw a 20% uplift in room rates, mainly attributable to completion of the latest phase of refurbishment. 
  • The increase in RevPAU in Australia was mainly due to the acquisition of Bourke Melbourne in 2015. 

 But dragged down by the UK and the Philippines. 

  • The UK, which accounts for over 11% of AUM, saw RevPAU decline 6% yoy, leading UK gross profit contribution to decline 5% yoy. This was mainly due to lower demand from the corporate market and ongoing renovation at Citadines Barbican, and exacerbated by the weaker £ against the S$. 
  • The Philippines also saw gross profit down 30% yoy due to disruptions from ongoing refurbishment at Ascott Makati, reduced room inventory at Somerset Millennium and weaker demand from corporate accounts. 

 Sector outlook. 

  • Management is cautiously optimistic on RevPAU growth in the coming year, which should be underpinned by ongoing AEI projects in the UK, the Philippines and China due for completion in 2Q16. Citing the United Nations World Tourism Organisation’s forecast of a 4% growth in international tourist arrivals for 2016, the group also expects demand to be relatively resilient. 
  • In the UK, the group expects the overhang from the Paris attacks to fade, and RevPAU growth of up to 5% should be fuelled by its refurbished Project Barbican (expected completion in 2Q16). 
  • Growth from America will hinge on both its recently acquired assets. 
  • In China (top market with 17% of total AUM), management expects growth to be muted (0-5% growth) as pressure accruing from tier-2 cities offsets growth seen in the tier-1 cities. 

 New and ongoing AEI in Vietnam, China, the Philippines and London. 

  • Phase 2 of the AEI project at Somerset Ho Chi Minh City will take place over 1Q16-1Q17. The S$1.5m AEI at Somerset Millennium Makati is set for completion by 4Q16. A slight delay is seen in the phased AEI (estimated cost of S$8.3m) at Citadines Barbican London, which should complete in 3Q16 (previously 2Q16). 
  • Meanwhile, Phase 2D of Somerset Xu Hui Shanghai and Ascott Makati’s ongoing refurbishment are expected to be on track for fruition in 2Q16.


Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | 2016-04-18
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.36 Down 1.39
BUY Maintain BUY 2.05 Same 2.05
BUY Maintain BUY 1.79 Same 1.79