REITs: Few earnings surprises

Living up to their reputation for comparative predictability and low risks, earnings results for real estate investment trusts (REITs) for the latest quarter ended September 2010 offered few surprises.

CapitaMalls Malaysia Trust (CMMT) announced its maiden earnings results for the period from July 14 to Sept 30 — reporting net profit of RM21 million, which was just marginally ahead of the forecast made in its prospectus.

Its three properties — Gurney Plaza in Penang, The Mines in Selangor and Sungei Wang Plaza in the heart of Kuala Lumpur — have a combined net lettable area of almost 1.88 million sq ft and maintained almost full occupancy, averaging at roughly 98.3% as at end-September.

Leases up for renewal in the year-to-date — which accounted for about 16.9% of total net lettable area under its management — too have registered positive rental increases, ranging from 2.5% for Sungei Wang and 6.6% for Gurney Plaza.

CMMT’s maiden profits distribution expected in 1Q2011

CMMT has committed to distributing 100% of earnings in the first two years of listing and at least 90% of annual profits thereafter.

We expect its first dividend payment for the eight months to December will be paid sometime 1Q2011.

Based on the trust’s earnings forecast, distribution will total 4.78 sen for this year and 7.44 sen for 2011. That would earn unit holders a yield of 4.2% and 6.6%, respectively at the current price of RM1.13.

CMMT is a pure play shopping mall REIT sponsored by CapitaMalls Asia, a member of Singapore-based CapitaLand group of companies. It was one of the two REITS listed on the local bourse this year and is currently the second largest in terms of market capitalisation.

Similarly, Quill Capita Trust’s earnings results for 3Q2010 were broadly in line with expectations. Net profit (excluding unrealised gains/losses) was up a decent 7% year-on-year (y-o-y) during the quarter and 4% for the nine months to date. It is on track to meet our earnings estimate of some RM34 million for the full year.

Assuming the same level of profit payout as last year — just over 92% — distributions would total 7.91 sen per unit, which would give unit holders a fairly attractive yield of 7.3% at the current price of RM1.08. The trust made an interim distribution of 3.85 sen per unit back in August.

Quill Capita is trading below NAV of RM1.22

Quill Capita made no new acquisition in the past two years but is believed to be looking at two properties within the Klang Valley worth some RM400 million.

At present, the trust has 10 properties in its portfolio — with net lettable area totalling more than 1.29 million sq ft — worth RM788 million. Its assets, primarily commercial-industrial properties are located in Cyberjaya, Kuala Lumpur, Selangor and Penang.

In addition to attractive yields, Quill Capita is currently trading below its net asset value of RM1.22 per share. That suggests room for capital gains for investors.

On the other hand, AmFirst REIT’s underlying earnings for 2QFY2011 were a little disappointing.

Revenue fell 10% y-o-y and 12% quarter-on-quarter (q-o-q) to RM22.1 million due, primarily, to a drop in the average occupancy rate for Kelana Brem Towers — to 63.8% as at end-September — and rental rebates as compensation for the disruption during refurbishment works at Summit Hotel.

More positively, occupancy at its flagship properties, Bangunan Ambank Group and Menara Ambank remains high at 95% to 100%.

One-off gains boost AmFirst’s profits distribution in FY10

However, thanks to some RM1.89 million in compensation for the compulsory acquisition of land fronting The Summit Subang USJ recognised during the quarter, net profit improved to RM10.6 million.

A further RM3.78 million will be recognised evenly in the next two quarters, which should boost total distribution for the current financial year — we estimate at 10 sen per unit assuming 100% payout. That will earn unit holders yields totalling 8.5% at the current price of RM1.18.

Nevertheless, earnings in the following year are likely to be lower in the absence of further one-off gains. As such, we forecast distribution could fall to around nine sen per unit in FY12, which would, nevertheless, still give investors an attractive 7.6% yield.

Although the trust registered positive rental revisions for several of its properties this year, the anticipated supply of office space coming onstream over the next few years would likely keep a lid on the quantum for future hikes.

AmFirst is currently in the midst of acquiring an additional retail lot in The Summit for RM6.8 million but has aborted plans to buy a five-storey building in Cyberjaya. The acquisition is targeted for completion by end-2010.