CCT – OCBC

Market Street Car Park Redevelopment finally comes into fruition

1Q11 DPU of 1.84 S-cents. CCT posted its 1Q11 results yesterday, which came in mostly in line with our expectations. Gross revenue met 25.5% of our full-year forecast and was down 10.6% YoY and 1.2% QoQ to S$91m. This was mainly attributed to the reduction in rental income arising from the sale of Starhub Centre and Robinson Point and the lower revenue contribution from Six Battery Road because of expected vacancies to facilitate the asset enhancement works and negative rent reversions. Total distributable income was down 4.1% YoY and 4.7% QoQ at S$52.1m. 1Q11 DPU is 1.84 S-cents, which is 4.7% lower than 1.93 S-cents reported a year ago. On an annualized basis, the latest distribution represents a yield of 5.3%. CCT also repaid the S$100m MTN that was due in Jan 2011 in cash this quarter and brought down its gearing from 28.6% to 27.8%. This gives it comfortable debt headroom of S$663m before hitting the 35% gearing level.

MSCP redevelopment. CCT also announced that it will be jointly developing Market Street Car Park (MSCP) with its sponsor, CapitaLand, into an ultra-modern Grade A office tower. CCT has obtained provisional permission from URA to rezone the premise from “transport facilities” to “commercial use”. The rezoning is subjected to two conditions: (1) payment by CCT of 100% of the enhancement in land value as assessed by the Chief Valuer, and (2) No extension of the existing land lease, which expire on 31 Mar 2073. The total project cost is estimated to be S$1.4b (S$1,944 psf on NLA basis).CCT will have a 40% stake in the JV and capital commitment of S$560m, which will be funded in stages. It will commit S$335m in 2011, and the rest via internal cash resources and debt, keeping pro forma gearing below 31%. The new office tower has a GFA of 887,000 sqft and height of 245m, expected to be completed before end 2014. According to our estimates, CCT’s existing NPI yield in FY10 was approximately 5.46%. CCT has stated that the stabilised yield from the completed development is expected to exceed 6% per annum, which makes the redevelopment yield-accretive.

Reiterate BUY. We are overall positive on the MSCP redevelopment but remain wary that its land lease is only 59 years following completion in end 2014. We also forecast CCT to continue to experience negative rent reversions in 2011 , but this should change in 2012. With its near 100% occupancy and active leasing strategy, CCT is poised to benefit from the rental upside ahead. Reiterate BUY with an increased RNAV derived fair value of S$1.63 (prev: S$1.61).