CCT – BT

CCT posts drop in Q2 distributable income

Mitsubishi Estate Asia to take 10% stake in Market Street project

CAPITACOMMERCIAL Trust (CCT) yesterday said it posted lower Q2 and first-half distributable income compared with the same year-ago periods following the divestment of two office blocks in Singapore and negative rent reversions.

It also announced yesterday that Japan’s Mitsubishi Estate Asia will take a 10 per cent stake in its Market Street Car Park (MSCP) redevelopment project. CapitaLand will take a 50 per cent stake and CCT 40 per cent.

CCT has been granted a call option to acquire CapitaLand’s and Mitsubishi’s interest in MSO Trust – an unlisted special purpose sub-trust set up to undertake the $1.4 billion project – or the completed development. It may exercise the call option any time over a three-year period after the new office tower obtains Temporary Occupation Permit (TOP). The purchase will be at market valuation that must reflect at least a compounded return of 6.3 per cent per annum – CapitaLand’s estimated cost of capital – to the sellers.

CCT also gave details of the MSCP redevelopment. A sum of $672 million is payable to the state comprising mostly differential premium or DP (equal to 100 per cent of the enhancement in land value resulting from the change of use of the site from ‘transport facilities’ to ‘commercial’), and other land-related costs.

MSO Trust will buy MSCP, currently owned by CCT, for $56 million, which reflects a 5.1 per cent premium to the $53.3 million average of two independent valuations (by Jones Lang LaSalle and CB Richard Ellis) in May this year.

The valuations were done based on the residual value of MSCP to be redeveloped into an office building, taking into account the DP payable to the state.

MSCP’s valuation as a car park facility as at end-December 2010 was $48.6 million. Construction and professional fees are estimated at $550 million. The new project’s gross floor area (GFA) will be about 887,000 sq ft and its net lettable area 720,000 sq ft.

The project is slated for completion before end-2014, when no major Grade A CBD office supply is slated for completion.

The new project can have about 170-180 car park lots which would be excluded from the GFA calculation – down from 704 lots in the existing MSCP building, which was shut on June 30.

Lynette Leong, CEO of CCT’s manager, said the group has applied to the authorities to allow the building of additional car park lots which would be excluded from the GFA.

CCT is not undertaking the MSCP redevelopment solo as it would exceed the 10 per cent limit on development projects (to total asset size) for Singapore Reits.

The trust’s portfolio of eight investment properties (excluding MSCP) was valued at $5.6 billion at end-June 2011 – up 2.8 per cent from their valuation at end-December 2010.

CCT’s total asset size stood at around $6.2 billion at end-June 2011, down 0.1 per cent from end-December 2010. Net asset value per unit, excluding distributable income to unitholders, was $1.52 at end-June 2011, an increase from $1.47 at end-December 2010.

Distributable income to unitholders dipped 2.3 per cent year on year to $54.4 million for Q2 ended June 30, 2011. Gross revenue slid 9.2 per cent to about $91 million while net property income declined 5.9 per cent to $69.8 million. Distribution per unit (DPU) fell 2.5 per cent to $1.92.

For the first-half, CCT’s distributable income eased 3.2 per cent to about $106.5 million; gross revenue fell 9.9 per cent to $182 million and net property income declined 7.9 per cent to $139.8 million. First-half DPU fell 3.3 per cent to 3.77 cents, translating to a 5.2 per cent annualised distribution yield based on CCT’s July 13 closing price of $1.46.

The counter ended one cent lower yesterday at $1.45. Unitholders can look forward to receiving their semi-annual DPU payout on Aug 26; the books closure date is July 28.

The weaker showing for both periods was due to lower revenue from Six Battery Road, where occupancy rates are lower as the office tower is being revamped; loss in rental income from the sale of Robinson Point and StarHub Centre; and negative rent reversions (that is, leases signed or renewed at lower rental rates than the previous lease agreement).

‘Current signing rents for office space are still substantially below the expiring rents for the leases due this year as they were predominantly signed during the peak of the previous cycle in 2008.

‘Hence, negative rent reversions for most of the trust’s properties are expected to persist through the rest of this year. We will continue our proactive leasing and cost management strategies to mitigate the expected fall in distributable income,’ said Richard Hale, chairman of CCT’s manager.