Friday, August 5, 2011

CMMT gains on good earnings

CapitaMalls Malaysia Trust (CMMT) has been keeping busy. Since the real estate investment trust — a “pure play” shopping mall REIT — was listed in mid-July 2010, it has acquired one property and is in the process of adding another to its portfolio.

The REIT completed the acquisition of Gurney Plaza Extension in Penang at end-March 2011. This enlarged its portfolio of net lettable area (NLA) under management to just over two million sq ft. Total investment properties increased to RM2.43 billion as at end-June 2011 — including RM54.2 million in property fair value gains this year — up by more than 14% from RM2.13 billion when it was listed just over a year ago.

CMMT is in the process of acquiring the East Coast Mall in Kuantan, Pahang, for a total cost of about RM330 million. The purchase will further expand the NLA under management to 2.46 million sq ft and total investment properties to RM2.76 billion. To finance the purchase, CMMT will issue up to 299 million new units.

This latest move will reaffirm the trust’s strategic positioning in the retail mall segment, extending its presence to four key urban centres — Kuala Lumpur, Penang, Selangor and Kuantan. The acquisition is slated for completion by 4Q11 and will start to contribute to earnings in 2012.

For the first six months of 2011, CMMT reported distributable income totalling RM55.9 million — excluding some RM51.3 million in unrealised fair value gains on investment properties and adjustments for manager’s management fee payable in units — on the back of total revenue of RM109.9 million.
Distributable income in 2Q11 totalled RM29.9 million, boosted by maiden contributions from the newly acquired Gurney Plaza Extension. Both shopper and vehicular traffic at its shopping malls recorded positive year-on-year (y-o-y) growth during the quarter.

Perhaps more importantly, all three of CMMT’s shopping malls — the enlarged Gurney Plaza, Sungei Wang Plaza in Kuala Lumpur and The Mines in Selangor — enjoyed positive rent reversion on leases renewed so far this year. Rental increases for the first year under the new leases range from 5.1% to 8%, with an average of 6.6% for its portfolio of assets. Occupancy also inched higher to an average of 99.1% as at end-June 2011, up from 98.7% at end-March 2011.

A second interim income distribution of 2.16 sen per unit raised the total distribution for 1H11 to 3.9 sen. At this pace, the trust is well on track to meet its forecast income distribution of 7.46 sen per unit for 2011.

In fact, based on its 100% payout commitment, total income distribution for the year may well be higher. This is likely, at least in part, the reason its unit price has spiked over the past two months from RM1.16 in early June to the current RM1.32. As a result of the recent price gains, yield (based on CMMT’s forecast 7.46 sen unit distribution) has narrowed to just 5.7%.

Quill Capita keeping existing portfolio intact
Quill Capita Trust, on the other hand, has not been as active in terms of expanding its portfolio of assets.

The real estate investment trust’s last acquisition was made way back in late-2008. Since then, the total number of properties has remained at 10, up from four at the listing date in January 2007, with some 1.29 million sq ft of NLA under management. While the manager is on the lookout for potential yield accretive acquisition opportunities, no imminent new purchases have been announced so far.

Nevertheless, Quill Capita does offer investors comparatively good yields on fairly low risks. Gearing has declined slightly to 36% as at end-June 2011, compared with just over 37% from a year ago, while its cost of debt has been steady at roughly 4.45% over the past four quarters. Almost all of the trust’s borrowings carry fixed interest rates.

Quill Capita reported a good set of earnings results for 2Q11. Net income rose 10.5% y-o-y to RM9.17 million on the back of a 1.5% increase in revenue to RM17.61 million. The better margin was attributed to lower property operating expenses.

For the first six months of the year, revenue was up 1.7% to RM35.1 million from the previous corresponding period, thanks to higher rental for some properties. Net income expanded by 6.8% y-o-y to RM16.9 million over the same period. As a result, the trust has raised its income distribution at the interim period to four sen per unit, from 3.85 sen per unit in 1H10.

On the back of the relatively good 1H11 earnings, we forecast higher income for distribution for the full year, estimated at 8.22 sen per unit, up from 8.03 sen per unit last year. This would translate into a fairly attractive yield of 7.5% at the current price.

It should also be noted that Quill Capita is one of the few REITs currently trading well below net asset value (NAV), which stood at RM1.28 at end-June. By comparison, CMMT is trading at 1.24 times its NAV of RM1.06 per unit.

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, August 5, 2011.

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