Month: April 2011
CCT – BT
Shimmering with x number of car lots
$1.4b tower coming up on historical parking site; unclear how many lots it will have but a survey finds sufficient parking space in vicinity
CapitaCommercial Trust (CCT) is joining hands with its sponsor CapitaLand to redevelop the historical Market Street Car Park (MSCP) for an estimated $1.4 billion, or $1,900 per square foot of net lettable area (NLA).
The new 245-metre building looks set to stand out. What is unclear though, is the number of parking lots it will provide when the 704 lots at MSCP are gone.
CCT unveiled the redevelopment proposal yesterday with its first quarter results. This is what the market can expect by end-2014: an ‘ultra-modern’ Grade A office tower designed by renowned Japanese architect Toyo Ito, with a gross floor area (GFA) of some 887,000 square feet spread across an estimated 40 storeys.
The commercial real estate investment trust (Reit) is in discussions to form a joint venture with CapitaLand Commercial for the project. The former could hold a 40 per cent stake – translating to a capital commitment of $560 million.
CCT needs a partner because under official guidelines, the total contract value of property development activities and investments in uncompleted property developments undertaken by a Reit should not exceed 10 per cent of its total asset size. The Reit had $6 billion of assets as at March 31.
CCT had in early 2008 obtained outline planning permission for the redevelopment, but was forced to drop the project in 2009 because of the financial crisis.
Industry watchers have been expecting CCT to pick up from where it left off as it looks for ways to invest its cash hoard after selling two properties last year. Speculation heightened when it returned to the authorities and won provisional permission for the project.
CCT said that it recently received ‘an indication’ from the Singapore Land Authority on the differential premium (DP) payable for the change of land use. The DP makes up about 45-50 per cent of the total project cost of $1.4 billion.
MSCP’s site will be rezoned for commercial use subject to two conditions: CCT has to pay 100 per cent of the enhancement in land value as assessed by the Chief Valuer in a spot valuation, and there will be no extension of the existing land lease. The site has a remaining lease of 62 years.
CCT expects the new tower’s stabilised yield to exceed 6 per cent per year. Analysts from Standard Chartered forecast a 3-5 per cent accretion to distribution per unit in 2015, assuming rents reach $14 psf by then.
Lynette Leong, CEO of CCT’s manager, laid out the case for the investment: ‘Having considered the unexpired land lease, estimated project cost, potential office market rent and there being no other new Grade A office building completing in 2014 in the core Central Business District area, we believe that a Grade A office tower is the best use for the site.’
The estimated development cost of $1,900 psf of NLA ‘is considerably lower’ than recently transacted prices of Grade A office buildings, she added.
As at March 31, CCT had cash and cash equivalents of $448.5 million. Ms Leong said that it would be able to fund the redevelopment using internal cash resources and debt, keeping pro forma gearing below 31 per cent, which leaves room for other acquisition opportunities.
MSCP was built in 1964 and has 704 parking lots. Despite this, the supply of lots in the CBD is currently tight, said Colliers International director of research and advisory Chia Siew Chuin.
CCT is working with the authorities to determine the number of parking lots in the new building. Going by Land Transport Authority (LTA) rules for the zone that MSCP is in, it should have at least one lot for every 450 square metres of GFA. A rough calculation based on the building’s estimated GFA shows that there has to be a minimum of 184 lots.
LTA told BT that the new building’s design is being finalised, and that a recent survey showed that there are sufficient spare parking spaces in the vicinity within a 5-10 minute walk from MSCP.
‘With the improvement of public transport coverage in the CBD over the years, the need to rely on private transport to get into the CBD has gradually reduced,’ LTA said. ‘In 2013, when the DTL 1 (Downtown Line 1) is operational, there will be three new MRT stations within the CBD and Telok Ayer Station will only be about 100 metres from MSCP’s current location.’
CCT – BT
CCT’s distributable income for Q1 dips to $52.1m
CAPITACOMMERCIAL Trust (CCT) yesterday posted weaker results for the first quarter ended March 31 as the sale of Robinson Point and Starhub Centre last year, asset enhancement works at Six Battery Road, and negative rental reversions affected earnings.
The results were largely within market expectations, but there were bright spots for unit-holders. The commercial Reit secured higher pre-commitment rates for upgraded space at Six Battery Road. It is also pursuing growth by proposing to redevelop Market Street Car Park.
In Q1, net property income dropped 9.9 per cent to $69.9 million. Distributable income dipped 4.1 per cent to $52.1 million.
As a result, distribution per unit was down 4.7 per cent to 1.84 cents. Based on CCT’s closing unit price of $1.42 on Monday, the distribution yield is 5.3 per cent.
‘The portfolio continues to perform well, except for Six Battery Road which contributed lower revenue due to expected vacancies to facilitate the asset enhancement works and negative rent reversions given lower market rental rates compared with the expired rentals,’ said Lynette Leong, CEO of CCT’s manager.
At Six Battery Road, CCT has completed the first phase of upgrading works and officially opened the building’s indoor vertical garden last month.
It now expects to enhance 76,100 square feet of office space and new and existing tenants have pre-leased 64 per cent of this. It said previously that it could upgrade 65,600 sq ft of space, and the pre-commitment rate was 52 per cent.
Richard Hale, chairman of CCT’s manager, said that negative rent reversions will occur for most of the leases expiring this year. They were mainly signed at the peak of the market in 2008. ‘Current office market rentals, though increasing, have not recovered to that level yet. We will continue our proactive leasing and cost management strategies to mitigate the expected fall in distributable income,’ he said.
CCT’s gearing ratio in Q1 was 27.8 per cent, down from 28.6 per cent in Q4 last year.
CCT lost one cent on the stock market yesterday to end trading at $1.41.
A-REIT – OCBC
FY10/11 results mostly in line; Maintain HOLD
4QDPU of 3.27 S-cents. Ascendas REIT (A-REIT) reported 4QFY11 gross revenue of S$112.9m, up 8.7% YoY and 2.6% QoQ. Net property income of S$84m also rose 9.5% YoY but declined 0.1% QoQ on the back of higher maintenance & conservancy charges and land rent. For FY11, gross revenue jumped 8.2% to S$447.6m, which was in line with our expectations. The revenue increase was attributed to the completion of the development of 5 Changi Business Park Crescent (a built-to-suit business park facility for Citibank N.A.). NPI also rose 6.1% to S$339.4m. Distributed income was 5.6% higher at S$247.9m. This included a capital distribution of S$4.77m, from the interest income derived from a finance lease granted to a tenant. 4QDPU is 3.27 S-cents, which is 19.8% higher YoY but 0.6% lower QoQ. On an annualized basis, the latest distribution represents a yield of 6.73% .
Portfolio Management. Portfolio occupancy improved marginally to 96% at end Mar versus 95.3% at end Dec. Occupancy of its multi-tenanted buildings also clocked in 92.1% versus 91.2% three months ago. The manager secured 238,927 sqm of lease renewals and 127,810 sqm of new leases for FY11 versus 186,637 sqm and 87,869 sqm respectively the previous FY. It also achieved positive rental reversion of between 2.1% and 6.7% in FY11 in three out of the four industrial subsectors, namely the Business & Science Park, High-Tech Industrial & Logistics & Distribution Centres subsectors. Only the light industrial subsector saw a decline in renewal rates due to large floor plate discounts given to major tenants. As of 31 Mar 2011, 43% of leases are long term with periodic rental escalation, of which about 33% have CPI-pegged adjustments.
Maintain HOLD. As at 31 March 2011, A-REIT’s aggregate leverage was 35.2% with a weighted average borrowing cost of 3.46%. Taking into account A-REIT’s subsequent private placement and post the funding of the acquisition of Neuros & Immunos and the deployment of net proceeds, aggregate leverage is expected to decline to 31.1%. With this, A-REIT will have debt headroom of about S$839m to reach aggregate leverage of 40%. For investments in China, A-REIT has a 3-5 years target of up to 20% exposure and will initially focus on major tier one cities such as Shanghai. We noted that listed companies with assets in China tend to trade at a lower premium to book vis-à-vis those with purely Singapore assets. We thus envisage A-REIT’s PBR to compress further moving forward. Maintain HOLD with a RNAV-derived fair value of S$2.04.
A-REIT – DBSV
Acquisitions to sustain earnings growth
• 4Q11 results in line with expectations
• Acquisitions to drive FY12-13F earnings growth of 11%
• HOLD call, DCF-based TP S$2.14 maintained
4Q11 results in line with expectations. 4Q11 distributable income of S$61.2m (DPU of 3.27Scts), +19.8% yoy, – 0.6%qoq was in line with our expectations. Topline of S$112.9m (+8.7% yoy, +2.6% qoq) was largely due to acquisitions completed in 1Q11 and the completion of its development project – 5 Changi Business Park Crescent which was 100% pre-committed to Citibank on a long term lease. This was aided by an uptick in average portfolio occupancy level to 96%, with 1pct sequential improvement in take-up of its multi-tenanted buildings to 92.1%. A-REIT continued to see positive rental reversions – 0.6% to 3.7% increase from 3Q11. NPI margins fell to 74.4% due to the expiry of proper tax rebates, an enlarged portfolio coupled with higher utility costs incurred in 4Q11.
Acquisitions driving FY12-13F earnings growth of 11% Earnings growth over the next 2 years will be driven by new acquisitions of S$376.1m (including committed investments development projects, asset enhancement plans). In addition A-REIT is pursuing some S$200m worth of opportunistic acquisitions in the coming months, which we have assumed in our numbers.
HOLD call on valuation grounds, DCF-based TP S$2.14 is maintained. While we like A-REIT for its defensive and well diversified portfolio and execution track record for its development projects, upside to our target price is limited from current level. Forward yields of 6.7-7.0% should limit downside to share price.
Rickmers – DBSV
Accelerated loan repayments continue
At a Glance
• DPU payout for 1Q11 maintained at 0.60UScts; in line with our expectations
• Accelerated repayment of loans continue, with another US$12.6m repaid in 1Q11
• Unlikely to meet conditions for removal of DPU cap in near term, maintain HOLD with TP of S$0.37
Comment on Results
Stable cash flows in 4Q. RMT’s topline fell 3.5% y-o-y owing to the lower charter rate for the vessel Kathe C. Rickmers, which was fixed at only US$8,288 to CSAV for the first year up to March 2011. Currently, the rate has been revised up to US$23,888 as CSAV exercised the option to renew the lease by 1 more year amid an improving charter market. Distributable cash flows remained stable on a y-o-y basis at US$16.3m for 1Q11.
DPU stayed at 0.6UScts, loan repayments continued. As the Trust repaid about US$12.6m of borrowings in 1Q11 – ahead of scheduled repayment of about US$8m – distribution to unitholders remained steady at US$2.5m for 1Q11, translating to a DPU of 0.6UScts, at the upper end of the DPU cap imposed by lenders.
Outlook & Recommendation
DPU cap could stay for a while. The Trust will continue to accelerate its deleveraging program in FY11, and borrowings could reduce from US$669m at end-FY10 to about US$624m at end-FY11. However, during the 3-year waiver period, the Trust’s DPU cap would be in place as long as the Value-to-Loan ratio on the IPO facility and subsequent top-up facility (about US$416m of which are outstanding currently) are below the covenant limit of 133%. According to our estimates, the value of the 10 vessels, which forms the security for the above facilities, is unlikely to cross that barrier in the near term, even after accounting for the gradual decline in borrowing level. Thus, we maintain our HOLD call on the stock, and our TP remains unchanged at S$0.37, pegged to 8% FY11 target yield. As highlighted earlier, balance sheet remains the key focus for management and acquisition driven growth will have to wait.