Category: CCT
CCT – BNP
CCT has underperformed the STI since October, tumbling 16% versus STI’s 8%. From a required returns perspective, we believe this stock has been oversold given that it now trades at a 5% FY08E yield and 215bp above the 10-year risk-free rate. Maintain BUY, with target price of SGD3.04.
More value intact
CCT has underperformed STI over past two months
Over the past two months, the share price of CapitaCommercial Trust (CCT) has underperformed the Straits Times Index (STI), tumbling 16% vs STI’s 8%. We believe concerns over prior yield compression and the narrowed spread against risk-free instruments have been overstated. To ascertain if this sell-down has been overdone, we used the dividend yield spread (over 10-year government bond yields) highs recorded since its listing to determine its floor price.
Trading at its floor price levels
CCT now trades at an FY08E yield of 5.0% (up from 4.0% in October 2007), or 215bp above the 10-year risk-free rate. This compares favourably against its 2004 average, when the stock traded at a yield spread high of 228bp and 201bp at IPO (in May 2004). Benchmarking against a yield spread of 228bp, our estimated floor price is SGD2.31. From a required returns perspective, we believe the stock has been oversold as it now trades at 2.5% above its floor price. Premising on a yield spread of 201bp, the floor price would have been SGD2.44, even offering 3% upside to its floor price (see Exhibit 3).
Significant debt head room for future acquisitions
CCT aims to increase its AUM from the current SGD4.7b to SGD6b by 2009. We believe medium-term acquisition opportunities could come from the One George Street (OGS) building, in which CapitaLand acquired the remaining 50% stake in Eureka Office Fund. OGS is valued at SGD1.2b at SGD2,700/sqft. CCT’s gearing currently stands at 27.2% (debt-to-asset ratio), which means it has debt head room of SGD1.5b before reaching its target gearing of 45%.
More value intact; TP of SGD3.04
We maintain our BUY rating and a target price of SGD3.04. CCT remains well positioned to take advantage of strong rental reversions with 50% of its office portfolio leases due for expiry in FY08-09. The stock currently trades at a 2% discount to its NAV of SGD2.40. Offering a prospective yield of 5%, we believe the stock now trades at oversold levels, which provides investors a good level for entry.
Office REITs – UOBKH
Continued interest from foreign investors
Germany-based Commerz Grundbesitz Investmentgesellschaft has bought 78 Shenton Way for S$650m or S$1,857psf from a JV between Credit Suisse and CLSA Funds. The property comprises an existing 34-storey office tower with 275,000sf and a 6-storey extension with 75,000sf. The extension is currently under construction and is scheduled for completion in 2H09.
The purchase price is comparable to recent transactions in the vicinity. German pension fund SEB bought SIA Building (renamed Robinson 77) earlier this year for S$1,780psf. SEB also bought 12 floors of office space at Springleaf Tower in the Anson Road area for S$2,088psf.
There is limited supply of office space coming on stream over the next two years (2008 and 2009). We expect to see buying interest for office REITs, such as KREIT, Suntec REIT and CapitalCommercial, given recent steep correction.
Continued interest from foreign interest will also booster share price.
CCT – BT
CapitaCommercial Trust sets up $1b notes programme
Multi-currency scheme has been rated ‘Baa1’ by Moody’s agency
CapitaCommercial Trust (CCT), one of Singapore’s biggest office landlords, announced yesterday the establishment of a $1 billion multi-currency medium-term note (MTN) programme.
The programme was established by CCT MTN Pte Ltd – a wholly owned unit of CCT trustee HSBC Institutional Trust Services Singapore.
The MTN programme will allow CCT MTN to issue notes in series or tranches in any currency as may be agreed between the company and DBS Bank, the arranger and the dealer of the MTN programme.
CCT MTN may issue each series or tranche of notes in various amounts and tenors, which may bear fixed, floating or variable rates of interest.
It can also issue hybrid or zero coupon notes.
All sums payable in respect of the notes will be unconditionally and irrevocably guaranteed by the CCT trustee.
The programme has been given a ‘Baa1’ rating by Moody’s Investors Service.
The net proceeds from each notes issue will be onlent by CCT MTN to HSBC. The CCT trustee can use the funds to: refinance existing borrowings; finance or refinance its investments; lend to any trust, fund or entity in which it has an interest; finance or refinance any asset enhancement works initiated by itself or such trust, fund or entity in which it has an interest; and for its general working capital.
CCT said yesterday that it has applied to the Singapore Exchange for permission to deal in, and quotation for, any notes which are agreed at the time of issue to be listed.
CCT last month posted distributable income of $29.6 million for the third quarter ended Sept 30, 2007 – 13.5 per cent higher than its forecast based on a circular dated August last year, and a 52.4 per cent improvement from the same period last year.
CCT’s Singapore properties include 6 Battery Road, Capital Tower, Robinson Point, HSBC Building, StarHub Centre and the Golden Shoe and Market Street car parks, and a 60 per cent stake in the Raffles City complex.
CapitaMall Trust is the joint owner of Raffles City complex.
Office REITs – UOBKH
Office REITs
Cooling off in bidding for office site
Auction for Marina View Land Parcel B located diagonally behind One Shenton has closed with only two bids, reflecting cautiousness for commercial properties due to the sub-prime mortgage crisis in the US. Marina View Land Parcel B has site area of 0.9hectare and can be developed into maximum gross floor area of 1.2m sf with at least 60% utilised for office and at least 25% utilised for hotel.
The top bid from MacQuarie Global Property Advisors came in at S$952.9m or S$779.42psf ppr. This is lower than CB Richard Ellis’ expectation of S$1,200 to S$1,300. Knight Frank has expected bids of between S$1.1b to S$1.3b or S$900 to S$1,060psf ppr. The second bid from CapitaLand came in at S$898m or S$734.52psf ppr. Some industry players are concerned that the latest site may not be awarded because the reserve price may not have been met.
Monthly gross rents of Grade A office space in Raffles Place increased by 18.2% qoq to average at $15.00psf in 3Q07. Capital values of Grade A office space in Raffles Place has also risen 23.8% qoq to an average of $2,416psf (source: Colliers International). K-REIT Asia and Suntec REIT have also recently acquired one-third stakes in One Raffles Quay at S$941.5m or S$2,115psf.
The limited supply of office space coming on stream over the next three years will provide some cushion for office properties. However, the cooling off in bidding for office sites within the Central Business District will have a dampening effect on share price for office REITs such as K-REIT, Suntec REIT and CapitalCommercial.
CCT – BT
CCT’s Q3 distributable income rises to $29.6m
Better result due to Raffles City, higher office rental income
CAPITACOMMERCIAL Trust, one of Singapore’s biggest office landlords, has posted distributable income of $29.6 million for the third quarter ended Sept 30, 2007, which is 13.5 per cent higher than the trust manager’s forecast based on a circular dated August last year, and a 52.4 per cent improvement from the same period last year.
‘The better financial performance year-on-year is a result of the accretive acquisition of Raffles City last year and the higher rental income from our quality office portfolio,’ CapitaCommercial Trust Management Ltd’s CEO Lynette Leong said in a news release.
CCT owns Raffles City complex jointly with CapitaMall Trust (CMT). The two real estate investment trusts yesterday gave an update on the asset enhancement works and leasing programme of retail space in the property. New tenants committed include the first Singapore stores of Spanish brands Cortefiel and Pedro del Hierro being introduced here by Ossia.
The stores will be on level one of Raffles City Mall, which will also feature flagship stores for Springfield and Kate Spade.
Ms Leong also highlighted that more than 50 per cent of CCT’s office leases (by gross rental income as at Sept 30 this year) expire in 2008 and 2009, positioning the trust for strong positive rental reversion to be realised from its office portfolio.
CCT’s Singapore properties include 6 Battery Road, Capital Tower, Robinson Point, HSBC Building, StarHub Centre and the Golden Shoe and Market Street car parks in addition to the 60 per cent stake in the Raffles City complex.
CCT’s Q3 gross revenue was $59.7 million, up 9.1 per cent from the forecast figure for the period and 60.1 per cent higher than that reported for the same year-ago period. Net property income was $42.5 million, which was 6.7 per cent higher than forecast and a 55.1 per cent year-on-year improvement.
CCT is not making any payout to unitholders for Q3 but its result for the quarter reflects a DPU of 2.14 cents. DPU for the first nine months of this year is 6.37 cents or an annualised figure of 8.52 cents, reflecting a distribution yield of 3.3 per cent based on CCT’s closing price yesterday of $2.57. The counter ended 10 cents higher yesterday.
CCT will be asking unitholders to approve its proposed acquisition of Wilkie Edge along Selegie Road at a coming extraordinary general meeting. The approval, if given, will boost the trust’s asset size to nearly $4.8 billion. The trust is targeting to grow this further to $5-6 billion by 2009.
CCTML says it expects the trust’s full-year 2007 performance to surpass the forecast DPU of 7.60 cents.