Month: July 2010
CCT – DBSV
Continues to deliver
• Results in line, marginal value writedowns
• Improved office demand and rental outlook
• Maintain Hold. Slight adjustment to DPUs which lifted TP to $1.33
Results as expected. CCT reported Q2 distribution income of $55.7m (DPU 1.97cts), up 15.2% y-o-y and 2.1% q-o-q. Net property income rose 1.3% on a mere 0.3% rise in revenue, contributed by marginally higher portfolio occupancy of 95.6%, better rents, lower operating expenses and reduced interest expense. In 1H10, the group has achieved DPU of 3.9cts or 55% of our full year forecast. The group took a marginal 0.5% writedown in its portfolio value to $5.49b, mainly from 6 Battery Rd, Bugis Village and Market St carpark. At this juncture, cap rates remain unchanged from Dec 09 levels.
Leasing demand gains momentum. New and existing tenants are renewing and expanding premises and management appears more upbeat about the rental outlook. The group renewed 442,000sf of leases in 1H10 including notable names such as Credit Agricole, Northern Trust, Accenture. Renewal of a remaining 6.6% of leases this year and a further 20% next year should benefit from the stronger rental market. With the sale of Starhub Centre for $380m, the group’s net gearing level is expected to improve from 32.8% to an estimated 20.8%, hence, providing the financial muscle for new acquisitions.
Maintain Hold. We expect 2H10 to be slightly weaker than 1H10 to reflect income loss from the divestment of Robinson Point and Starhub Centre. We have tweaked our FY10 and FY11 numbers slightly up to 7.2cts and 6.6cts respectively to adjust for non-tax deductible items. CCT is currently trading at yields of 5.4% and 4.9% for FY10 and 11 respectively. Maintain Hold with a slightly higher TP of $1.33. Catalysts, in our view, for the stock remains its ability to pursue yield accretive acquisitions to replenish its portfolio or potential redevelopment of some of its older properties.
CCT – OCBC
1H DPU of 3.9 S cents; CCT more positive on office Sector
1H DPU of 3.9 S cents. CapitaCommercial Trust (CCT)’s 2Q10 gross revenue of S$100.2m edged up 0.2% YoY but slipped 1.6% QoQ. Similarly, net property income gained 1.3% YoY but fell 4.3% QoQ to S$74.2m. The QoQ declines may be due to lower contributions from Robinson Point, sold on 19 Apr. Tax claims on capital equipment and lower interest expenses due to reduced leverage (32.3% versus 41.9% a year ago) resulted in a 15.9% YoY increase in distributable income to S$55.7m. CCT has declared a 1.97 S cents DPU for 2Q10. Unitholders will receive a total of 3.9 S cents for 1H10, translating to an annualized DPU yield of 5.8%. CCT will trade ex-distribution on 28 Jul.
CCT more positive on office sector. CCT signed 277,000 square feet of new leases and renewals during the quarter; demand stemmed from banking, financial and professional services. About half of new leases signed were driven by the expansion plans of existing tenants. Portfolio occupancy improved to 95.6% from 95.1% three months ago, with Grade A office occupancy hitting the 100% mark compared to 99.1% three months ago. The manager’s tone was fairly positive, citing strong pre-commitment for new space, the QoQ up-tick in market rents over 2Q10, and the pick up in leasing momentum at its assets. CCT said that “given Singapore’s strong economic growth, the prospects for further rental growth for Grade A and prime office space appear positive for the rest of 2010.” Negative rent reversions still remain a key risk, in our view.
Scouting for acquisitions. Last week, CCT said it will sell non-Grade A office building StarHub Centre to Frasers Centrepoint Ltd, the property arm of Fraser & Neave [FNN, NOT RATED] for S$380m. This is its second asset sale in the year. Sale proceeds will be used for growth opportunities and/ or to reduce debt. With “ample resources” in the form of sales proceeds and debt headroom up to its long-term 45% target, CCT said it was looking for “well-located Grade A” office assets in Singapore. The re-development of Market Street Car Park, shelved during the crisis, could be an alternative use of the funds (contingent on CCT’s ability to re-obtain Outline Planning Permission from the URA to convert the allowed use of the asset). With a change in analyst coverage, we will be reviewing our assumptions and earnings estimates. As such, our previous HOLD rating and S$1.26 fair value for CCT is UNDER REVIEW.
CMT – DMG
Trading at unattractive yields; stock fully valued
2Q10 results within expectations. CMT reported 2Q10 DPU of 2.29¢ (+7.5% YoY; +2.7% QoQ), representing 24% of our FY10 DPU forecast of 9.45¢. Net property income rose 5.3% on higher rental reversion and lower operating expenses. Asset enhancement works for JCube and The Atrium remain in focus, and is expected to contribute to the group’s bottomline only in 2012. CMT will trade ex-2Q10 distribution on 30 July 2010. CMT trades at an unexciting yield of 4.8%, justifying our NEUTRAL view on the counter with a DDM-derived TP of S$1.90. Prefer FCT for its suburban retail exposure.
Asset enhancement in focus; poor traffic footfall observed at new link. CMT’s portfolio occupancy remained relatively unchanged at 99.5%. Asset enhancement works for Raffles City basement 2 link to Esplanade MRT was recently completed and the remaining works for basement 1 are scheduled to be completed by end-2010. We visited the link-mall at lunch today and observed poor traffic footfall. We believe this is largely due to three factors: 1) obscurity of the link-mall to Marina Square; 2) lifestyle-related retail offerings and 3) the weaker-than-expected MRT ridership on the Circle Line.
Positive rental reversion in 2H10 remains a challenge. In 1Q10, CMT retained S$9.5m (S$0.3¢ per share) of its distributable income, in view that 2H10 DPU could be affected by weaker rental reversions given that the bulk of the leases were locked-in at a high rate during the heydays of 2007. We believe the retained earnings would be paid out in 2H10 to smoothen out any probable decline in DPU as a result of weaker rental reversions.
Stock fully valued; recommend entry at S$1.80. While we continue to recognize CMT’s impeccable mall management expertise, valuations for the counter appear rich. Without accretive acquisitions, we believe the stock is fully valued. We prefer Frasers Centrepoint Trust (BUY / TP: S$1.66) given its attractive yield of 6% and pending asset enhancement of Causeway Point.
PST – BT
Pacific Shipping cuts Q2 DPU
PACIFIC Shipping Trust (PST) has pared its distribution per unit (DPU) by 20 per cent from a year ago to 0.793 US cents for the second quarter ended March 31 as it retained more cash to acquire new vessels.
Income available for distribution dipped 2 per cent to US$6.52 million in the second quarter. But 30 per cent of the distributable income was retained in the second quarter, compared to a previous 10 per cent, trust manager PST Management (PSTM) said yesterday.
The DPU of 0.793 US cents represents a tax-free annualised yield of 10.9 per cent.
‘This policy of preserving cash has enabled PST to acquire two new 180,000 deadweight tonne (DWT) capesize bulk carriers as announced on June 28, 2010,’ PSTM said.
These bulk carriers cost US$61.6 million each and are scheduled to be delivered in September next year, with a 10-year charter with Jiangsu Shagang Group Co.
The 10-year charter will add about US$194 million to PST’s contracted revenue, which will hit close to US$500 million over the next 10 years.
‘These new acquisitions mark a major milestone for PST to diversify into a new asset class and enlarge our base of charterers,’ said PSTM acting CEO Teo Choo Wee.
PST’s current fleet portfolio comprises 12 container vessels.
During the second quarter, gross revenue from the 12 vessels chartered on a long-term basis dipped 2 per cent from a year ago to US$15.15 million, with profit after tax remaining stable at US$6.64 million compared with US$6.66 million a year ago.
PST said that its balance sheet remains strong as all vessels have been financed on a long-term basis and that its loans do not have loan-to-value ratios on the vessels and top-up provisions.
The trust manager said it remains ‘cautiously optimistic for the outlook of the container market’ though it expects that chartered rates for container vessels will continue to recover amid improving freight rates and asset prices.
It also expects shipping demand for capesize bulk carriers to be sustained by China’s demand for iron ore and coal.
Mr Teo said PST will continue to explore ‘further opportunities for meaningful acquisitions’.
CCT – BT
Distributable income up 16% for CapitaCommercial
Money from StarHub Centre sale to be kept for acquisitions or to repay debt
CAPITACOMMERCIAL Trust (CCT) unitholders will not receive any special payout as a result of the trust’s recently announced $380 million sale of StarHub Centre. Instead, CCT will keep the sale proceeds as dry powder for acquisitions or to repay debt.
CCT will generally be looking at Grade A office assets in Singapore, which tend to be ‘quite sizeable’, Lynette Leong, CEO of CapitaCommercial Trust Management Ltd, said during the trust’s second quarter results briefing yesterday.
The trust has $85 million of debt due to expire this year and a further $841 million in 2011. As at June 30, its cash and cash equivalents totalled $464 million.
CCT posted distributable income of $55.67 million for Q2 ended June 30, up 15.9 per cent from a year back. The improvement was due mainly to lower interest expenses on the back of lower borrowings.
Net property income edged up 1.3 per cent year on year to $74.23 million and gross revenue rose 0.2 per cent to $100.2 million.
CCT booked a $19.6 million gain on the sale of investment property from divesting Robinson Point, which was completed on April 19. It also booked a $12.94 million premium on the repurchase and cancellation of $175 million of convertible bonds due 2013 in Q2 this year.
An independent valuation of the trust’s portfolio of investment properties was conducted as at June 30, which showed a marginal 0.5 per cent or $25.7 million drop in its market value since the previous valuation at end-2009. However, these three items do not affect distributable income.
CCT’s distributable income for the first half of this year was $110.02 million, up 17.8 per cent from a year earlier, on a 2.3 per cent rise in gross revenue to $202.04 million.
Net asset value per unit – after adjusting for H1 distributable income to unitholders – came to $1.36 as at June 30, down one cent from the end-2009 figure.
Distribution per unit for Q2 2010 works out to 1.97 cents. The trust, which pays distributions semi-annually, will make a DPU payout of 3.9 cents for H1. The books closure date is July 30 and unitholders can expect to receive their distribution on or around Aug 27.
DMG & Partners Securities said that the Q2 DPU was ‘about 8 per cent above our and the street’s forecast . . . (but) we maintain our FY2010 DPU forecast of 7.2 cents, in view (of the likelihood) that the sale of Robinson Point and StarHub Centre may reduce overall distributable income in H2 2010’.
‘Management reiterated that they will use proceeds from the asset divestment to retire some of its short-term debt, thereby boosting its credit metrics. CCT trades at 5.4 per cent FY10 yield, and will trade ex-2Q10 distribution on July 30. Maintain ‘neutral’,’ DMG said in a report yesterday.
CCT’s gearing ratio – borrowings over total deposited properties – stood at 32.8 per cent as at June 30, down from 33.2 per cent as at Dec 31, 2009.
In Q2 this year, CCT signed new leases and renewals of 277,000 square feet, taking the total for the first half to 422,000 sq ft. Tenants include Accenture at Raffles City Tower; Credit Agricole Corporate and Investment Bank at Capital Tower; financial research outfit EDHEC Risk Institute-Asia and law firm Watson, Farley and Williams at Six Battery Road; and Northern Trust at One George Street.
Ms Leong said that CCT was seeing growing expansion needs among its tenants. She also remains upbeat on the recovery of Singapore’s office market, after Prime and Grade A average office rental values bottomed out in Q1 this year.
‘We are positive that the continued growth in office demand in tandem with Singapore’s economic development will further strengthen absorption rates and augur well for the office market,’ she said.