Month: April 2008
Cityspring – SGX
On 14 February 2008, the new Singapore Gas Act came into force, providing a new regulatory framework for the Singapore gas industry.
In conjunction with this, CitySpring Infrastructure Trust is pleased to announce that its wholly-owned subsidiary trust, City Gas Trust (“City Gas”), had been granted the following new licenses by the Energy Market Authority (“EMA”):
(1) a Gas Retailer Licence, authorising City Gas to retail natural gas and to produce and retail town gas in Singapore; and
(2) a Gas Shipper Licence Gas, authorising City Gas to transport gas in Singapore, in each case on the terms and conditions of the respective licences.
The licenses are for a term of 10 years and may be renewed prior to their expiry with EMA’s approval. City Gas does not expect the new licences to have any impact on its business of producing and retailing town gas.
CCT – UOBKH
1Q08: Benefiting from positive rental reversion
CapitaCommercial Trust (CCT) reported gross revenue of S$71.2m in 1Q08, an increase of 22.8% yoy. Notable growth drivers were 6 Battery Road, Robinson Point and Capital Tower, where revenue contributions increased 81.5%, 23.1% and 16.3% yoy respectively. CCT benefited from strong demand for office space from banks and financial institutions and supporting business services such as legal and IT firms. Renewed and new leases committed in 1Q08 were 195.1% over preceding rental rates. CCT was able to sign leases above S$20psf pm during the quarter. Net property income increased 15.6% yoy to S$49.6m while distributable income gained 22.6% yoy to S$35.9m. CCT announced DPU of 2.59 cents for 1Q08, an increase of 22.7% yoy.
Benefiting from positive rental reversion in 2008 and 2009. Rentals for prime office space within Raffles Place and Marina Centre shot up from S$8.60 in 1Q07 to S$15.00psf pm in 4Q07 (source: CB Richard Ellis). Rentals for prime office space surged a further 6.7% qoq to S$16.00psf pm in 1Q08 as tenants chased after limited pockets of vacant space within the Central Business District. Overall occupancy rate for Grade A and B offices at 96.9% is above the technical full occupancy rate of 95% (Source: Colliers International).
Supply of office space remains constrained in 2008. Only 959,000sf of new office space will come on stream, the majority in fringe suburban locations. According to CB Richard Ellis, rentals for prime office space could average S$17.00psf pm by end-08, an increase of 13.3% in 2008. Supply of 1,275,000sf of office space in 2009 is also lower than projected take-up of 1.6m sf per annum. CCT is well positioned to benefit from positive rental reversion as another 29.4% of its leases for office space are up for renewal in 2008 and 2009.
Call option to acquire One George Street. CCT has obtained a call option to purchase One George Street from CapitaLand for S$1.165b, or S$2,600psf. One George Street is a 99-year leasehold Grade A office building within walking distance from Raffles Place MRT station with a net lettable area (NLA) of 447,999sf. CapitaLand will provide yield protection with minimum net property income of S$49.5m p.a. (yield of 4.25%) for five years from the date of completion of acquisition till 2013. This is equivalent to rental of S$10.50psf pm. CCT’s asset size will expand to S$6.5b if the acquisition is approved and completed. The company has secured committed debt funding and will not require placement of new units. Gearing is estimated to increase from 24% to 40.8% post acquisition of One George Street.
Has refinanced short-term borrowings. CCT has issued S$150m 3-year medium term note with fixed interest rate of 3.05% in Mar 08. This has largely satisfied funding requirements for refinancing short-term borrowings and the acquisition of Wilkie Edge, a mixed development project at Selegie Road. CCT has also launched a S$280m 5-year convertible bond with coupon of 2%, yieldto- maturity of 3.95% and conversion price at S$2.6762.
CCT provides a diversified exposure to the office market in Singapore. It provides FY08 distribution yield of 5.29%, a healthy spread of 2.94% over 10- year Singapore government bond yield at 2.35%. Our target price is S$2.63, assuming the acquisition of One George Street is completed by Jun 08.
CCT – BT
CCT Q1 distributable income at $35.9m
DPU of 2.59 cents is 12.1% above forecast
CAPITACOMMERCIAL Trust (CCT) has announced a first-quarter distributable income of $35.9 million, or 12 per cent higher than forecast. Distribution per unit (DPU) for the three months ended March 31 came to 2.59 cents, better than the 2.11 cents a year ago and 12.1 per cent above forecast.
Net property income totalled $49.6 million or 8.8 per cent above forecast. ‘CapitaCommercial Trust achieved higher rental income as Singapore experienced considerable rental growth in the office market over the past 12 months,’ said Richard Hale, chairman of CapitaCommercial Trust Management, which manages the trust. ‘This growth, together with our strategy of pro-active asset and prudent capital management, increased the first-quarter 2008 distribution per unit significantly by 22.7 per cent over the same quarter in 2007.’
Mr Hale said that if the acquisition of 1 George Street at a purchase price of $1.165 billion is approved and completed, CCT’s total asset size will grow to $6.5 billion, ahead of the target of $6 billion by next year.
‘Given Singapore’s still-strong economic fundamentals and continued healthy office leasing demand, we are confident of exceeding the forecast distribution per unit of 10.04 cents to unitholders in 2008,’ he said.
Lynette Leong, chief executive of the manager of the trust, said that there is continuing keen demand by banks and financial institutions for greater space in CCT’s quality buildings. CCT’s portfolio includes Capital Tower, 6 Battery Road, HSBC Building, Starhub Centre, Robinson Point, Bugis Village, Golden Shoe Car Park and Market Street Car Park.
Grade A and prime office rents averaged $18.65 per square foot (psf) per month and $16 psf per month respectively in Q1 2008, representing increases of 8.7 and 6.7 per cent from the preceding quarter.
‘Given the prime quality of CCT’s portfolio, we have signed leases above $20 psf per month in Q1 2008,’ Ms Leong said. ‘Our well-balanced lease expiry profile, together with our pro-active asset management, will enable us to benefit from the tight office market . . . and gain continued rental upside.’
MapleTree – DBS
Internal boost
Comment on Results
MLT reported strong 1Q08 results. Gross revenue grew 48% y-oy to S$42.6m, while NPI rose 45.5% to S$37.4m. Contributions from 23 properties acquired in the past year and positive rental reversions that were secured at c. 29% above preceding rents had lifted bottomline. Distributable income of S$21m (DPU: 1.9cts) was 6.7% higher y-o-y and c.10% above our and consensus estimates. The main swing factor was interest cost, which the REIT managed keep low at 2.9% due to declining interest rates.
Looking ahead, MLT expects to benefit from (i) optimizing yields through rental reversions for the remaining 124k sqm of NLA between 2Q08 – 4Q08, (ii) additional income from completion of another eight asset acquisitions throughout FY08F for a total consideration of S$291m. However, gearing is high at 54.7%, which leaves only S$329m of debt headroom before it reaches the regulatory limit.
Recommendation
We have raised our FY08F and FY09F DPU to 7.7cts and 7.9cts to reflect a lower effective interest cost, translating to FY08F and FY09F yields of 7.5%and 7.7%, respectively. Maintain BUY on MLT with DCF-backed target price of S$1.51 (previous S$1.42), a 47% upside from current trading levels. However, the stock is likely to be re-rated only when it de-gears its balance sheet.
CCT – DBS
Strong organic growth
Comment on Results
CCT posted a smaller 15.6% improvement in net property income to $49.6m on a 23% rise in revenue to S$71.2m as higher property taxes boosted expense ratio to 30.3%. Distributable income rose 23% to $35.9m translating to a DPU of 2.59cts. The better performance was due to strong organic growth from its office and retail assets as portfolio occupancy levels reached 99.6%.
During the quarter, new and renewal office and retail leases were transacted at 195% and 159% above preceeding levels. Highest average rents of $20.50psf were committed at 6 Battery Rd. Looking ahead, CCT is expected to continue benefiting from the positive rental reversion trend with a total 56% of rental income due to be reviewed over the remaining 2008 to 2010. The significant spread between renewal and average passing rents should translate to a strong uplift in income over the 2 years.
Furthermore, acquisition of One George St, scheduled to complete in 2H08, should provide a new accretive income source. In addition, progressive completion of asset enhancement activities at Raffles City Tower should lead to a further boost in bottomline.
Recommendation
We are maintaining Buy on CCT for its strong organic earnings growth. Projected FY08 and FY09 DPU of 10.7cts and 12.9cts translates to a yield of 5.1% and 6.1% respectively. Our price target of $2.93 offers a potential upside of 40%.