Category: CCT
CCT – BT
CapitaCommercial Trust selling Robinson Point
The buyer is said to be US property fund manager AEW
CapitaCommercial Trust (CCT) is close to selling Robinson Point for some $200 million, or about $1,500 per square foot of net lettable area, BT understands.
The buyer of the 21-storey freehold office property is said to be US property fund manager AEW. AEW bought the former Apollo Centre in late 2007 for $205 million, and has since revamped it through a major retrofitting exercise that was completed last year.
Robinson Point has a net lettable area of 133,139 sq ft and is said to have about 90 per cent occupancy.
The building generated $7.3 million net property income (NPI) for the financial year ended Dec 31, 2008. For the third quarter ended Sept 30, 2009, Robinson Point’s NPI was $2.62 million.
Some market watchers recall the property was in the market a few years ago, with a potential buyer even doing due diligence on it. However, the deterioration in office capital values put CCT’s target price at the time out of sight.
Robinson Point was completed in 1997 by DBS Land – which had merged with Pidemco Land in 2000 to form CapitaLand. In merger documents, the property was valued at $193 million as at June 15, 2000. It was part of CapitaLand’s office portfolio that was spun off to CCT when the trust was listed on the Singapore Exchange in 2004.
Market watchers wonder whether AEW will spruce up the property, just as it has done for the former Apollo Centre.
Under the revamp, the seven-storey building’s net floor area has increased from some 148,000 sq ft to 170,000 sq ft. The property is now known as 2 Havelock Road.
Market watchers note that Robinson Point’s impending sale reflects foreign investors’ growing appetite in the Singapore office market again.
The office blocks that had changed hands last year were mostly smallish deals of under $100 million apiece and bought mostly by local players.
For example, Parakou Building at the Robinson Road/McCallum Street junction was bought by a unit of Choo Meileen’s Cathay Organisation, and VTB Building at Robinson Road, Aviva Building at Cecil Street and Cecil House next-door were purchased by interests linked to Fission Group and Yi Kai Group.
AEW, which is headquartered in Boston, and its affiliates manage more than US$45 billion of real estate assets and securities, as at Sept 30, 2009, on behalf of institutional and private investors. The group set up an office in Singapore in April 2007.
CCT – OCBC
Tough operating conditions in 2010
Negative rental reversion to kick in in 2010. Going into 2010, we expect operating conditions to get tougher for CCT. Negative rental reversions are likely to set in as the higher rents secured in 2007 will be due for renewal in 2010. Some of these expiring rents (at Six Battery Road and Raffles City Tower) are significantly higher than the current Grade A office rents of S$8.80 psf pm. Although the decline in office rents has slowed, the downward pressure is expected to persist with the upcoming supply of new office spaces in 2010 and we believe that this could widen the negative reversionary gap.
No major refinancing in 2010. CCT did a Rights issue in mid-2009 and after repaying its borrowings with part of the proceeds from the issue, gearing level is now at a comfortable 31.2%. For 2010, CCT has S$235m of medium-term notes due for refinancing and this could be partially repaid using the remaining balance of the Rights proceeds of ~S$140m. On this assumption, we estimate that CCT’s gearing would fall to 29.7% after refinancing the borrowings due in 2010.
Acquisition plans may be constrained by refinancing in 2011. While CCT’s low gearing gives it significant headroom for debt-funded acquisitions, we believe that the significant refinancing needs in 2011 will be the key focus of management in 2010 and this could limit CCT’s acquisition plans. CCT has total borrowings of S$652m due for refinancing in 2011 and this figure could increase by S$370m if the convertible bond holders exercise their put option.
Maintain HOLD; Buy at more attractive valuation and yield. Undeniably, CCT has a strong portfolio of quality assets and tenants that make it stand out as one of the stronger office landlord in Singapore. Nevertheless, on absolute and relative basis, valuation and DPU yield are no longer attractive in our view, after the recent gain in share price. CCT is currently trading at a Price/NAV of 0.78x and a projected FY10 DPU yield of 5.4% whereas its closest peer, K-REIT Asia [unrated], is now trading at a Price/NAV of 0.72x and a consensus FY10 DPU yield of 6.5%. We are keeping our estimates unchanged and maintain our fair value of S$1.13 on CCT, which is pegged at par to our RNAV estimate. With a total return of 1.6%, we maintain our HOLD rating on CCT. We advise investors to accumulate at prices closer to S$1.05-S$1.10.