Tuesday, January 25, 2011

Contrasting outlook for CapLand's M'sian Reits

The immediate outlook for CapitaLand's two real estate investment trusts (Reits) in Malaysia appears to be a picture in contrast.

Its retail Reit, CapitaMalls Malaysia Trust (CMMT), is expected to ride on strong retail growth this year while its sister unit, Quill Capita Trust (QCT), will face rental pressures owing to the huge supply of incoming commercial space.

Both units' normalised net profit for 2010 was in line with expectations, but Maybank-IB Research believes their outlooks differ.

The stockbroker anticipates a stronger year ahead for CMMT supported by better rental and occupancy rates, driven by robust retail growth - projected at 5 per cent year-on-year.

Listed mid-year on the Malaysian stock exchange with an initial portfolio of three shopping centres - Gurney Plaza, Sungei Wang Plaza and The Mines - CMMT recently proposed acquiring a nine-storey retail extension block adjoining Gurney Plaza in Penang for RM223 million (S$93.57 million), to be funded via debt and RM167 million in new unit placement.

CMMT Investment Ltd, which holds nearly 42 per cent of CMMT, has agreed to underwrite additional unsubscribed placement units under a book building exercise. Post-placement, the acquisition of Gurney Plaza Extension could boast CMMT's distribution per unit (DPU) by another 3-5 per cent.

With 98.3 per cent or nearly full occupancy at its malls and a 16 per cent increase in shopper traffic in the last quarter of 2010 from a year ago, rental rates which were up an average 5 per cent last year, could see further improvement.

In comparison, QCT, in which CapitaCommercial Trust has a 30 per cent stake, has fallen off investors' radar since listing in January 2007. Maybank pointed out that as with CMMT, QCT yields about 7.1 per cent - slightly below the average M-Reit of 7.8 per cent.

But QCT - a joint-venture with local real estate Quill Group - has been wanting in its pace of new acquisitions. Despite earlier indications that its strong parentage of CapitaLand and Quill would ensure a healthy pipeline for growth, new asset injections have been slow.

The latest dampener was the fall-through in plans to purchase HSBC's new 150,000 sq ft headquarters last year, possibly because of the competition to raise financing. QCT will need to grow organically at a time when office rental revisions are expected to come under pressure because of major incoming supply of commercial space, said Maybank.

However, because many of QCT's portfolio buildings are purpose-built, some of the pressure could be negated. In its latest results announcement, QCT said its active asset management strategies have ensured income stability through lease renewals with tenants, with all leases due last year being renewed.

Maybank said 28 per cent of QCT's total net lettable area is up for renewal this year.

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