CapitaMall Trust (CMT) reported distributable income of S$69.6m (+20.7% yoy) and DPU of 2.13 cents (-39.5% yoy) for 2Q09, in line with our expectations.
Sustaining full occupancy. Portfolio occupancy was 99.7% in 2Q09, a slight improvement from 99.5% in 1Q09. A total of 322 renewals and new leases involving net lettable area (NLA) of 392,961sf were signed in 1H09. Contracted rental rates were 1.5% higher than preceding rental levels, sustaining a slight positive rental reversion. Gross revenue locked-in for 2009 exceeds 98% of full-year 2008 gross revenue, based on existing committed leases as at Jun 09.
Valuation of investment properties. CMT has recognised S$276.2m or 3.9% decrease in valuation of its investment properties. Its assets in Singapore are currently valued at S$6.9b. Capitalisation rate has increased marginally by 5-10bp to 5.50-6.00%. NAV/share was thus reduced from S$1.65 to S$1.56.
Credit crunch has eased. CMT does not have any debt refinancing for the rest of 2009. It has borrowings of S$440m due in 2010, with the bulk of S$315m due in Apr 10. Current gearing of 33.4% will be further reduced to 30.3% when S$335m fixed rate term loan is repaid with proceeds from the rights issue in Aug 09. Feedbacks from bankers indicate that a credit spread has dropped 100bp for bank loans with maturity of five years. Management intends to stretch out its debt maturity profile to 7-10 years to improve capital management. Moody's Investors Service has reaffirmed a corporate rating of A2 for CMT, the highest among S-REITs.
Work on JEC to commence by end-09. Management targets to commence asset enhancement initiative (AEI) for Jurong Entertainment Centre (JEC) by end-09. The mall has been closed since Nov 08. CMT was granted an increase in plot ratio for JEC from 1.85 to 3.00, more than doubling net lettable area (NLA) to 209,700sf. The reconstructed mall will have an Olympic-sized ice skating ring. CMT has secured pre-committment from anchor tenants for 50% of NLA (cinema, food court and supermarket). Construction cost is estimated at S$150m and the AEI is scheduled for completion in 2H11.
We have kept our earnings/forecasts relatively unchanged as the results were in line with our expectations. Maintain BUY with a target price of S$1.70, based on a Dividend Discount Model (required rate of return: 7.2%, growth: 3.0%).
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