Category: CCT
CCT – CIMB
Delayed earnings
• Slightly below. DPU grew 16.1% yoy to 2.1cts in 3Q07, driven mainly by strong rental reversions for office assets. However, YTD DPU of 6.5cts represents 72% of our forecast and 73% of consensus’s.
• Strong reversions, but NPI margins fell. Strong office rental reversions continued amid a supply crunch, driving up 3Q07 gross revenue by 57.2% yoy to S$60.7m. However, net property income margins dipped 2% pts qoq to 71.2%. This was attributed to the temporary loss of income during asset enhancement work and the repositioning of tenants in Raffles City, Golden Shoe Car Park and Starhub Centre, as well as increases in property tax for Capital Tower and higher utilities for Market Street Car Park. In view of rising property expenses, we expect net property income margins to stay at such levels for the rest of 2007.
• Expanding through asset enhancement and acquisitions. Phase 1 of CCT’s extensive asset enhancement and repositioning efforts at Raffles City is expected to end in time for Christmas. When completed, retail space is expected to increase by 40,000 sf, or 11.5% of the current retail NLA. Pre-commitments for the additional space stand at 99%. In addition, an EGM will be held next month to obtain unitholders’ approval to acquire Wilkie Edge, a mixed retail and office project at Selegie Road being developed by its parent, CapitaLand, for S$262m. Approval is very likely and the resulting income, expected from 2009, has been assumed in our valuation. We believe CCT is on target to achieve S$6bn of assets by 2009 via acquisitions from its parent.
• Maintain Neutral; DPU and target price adjustments. We are adjusting our DPU estimates to reflect increased earnings from asset enhancement in 2008, and continued strong office rental reversions in 2008-09 when more office leases expire. We have cut our DPU estimates by 11% to 8.5cts for 2007 and raised estimates by 2% to 10.7cts for 2008. Accordingly, we have raised our end-2008 DDM-derived target price from S$2.75 to S$2.80 (cost of equity 5.3%). As there is limited upside to our target price, maintain Neutral.
CCT – UOBKH
3Q07 DPU +19% yoy due to strong rental growth and accretion from Raffles City acquisition
Good set of results for 3Q07. CapitaCommerical Trust (CCT) 3Q07 results were in line with our expectation and ahead of its own forecast. Buoyed by strong rental growth and accretion from the acquisition of Raffles City, CCT achieved a 19% yoy growth in distribution per unit (DPU). At the end of Sep 07, the CCT achieved a committed occupancy of 99.9%.
Positive outlook from rental reversion and asset enhancement initiatives (AEI). We expect office rental to continue its up-trend as office supply remains tight and demand continues to be strong. With more than 50% of the office leases expiring in the next 2 years, CCT is poised to benefit the upward rental reversion. Following the completion of Phase 1 of the AEI by end of 4Q07, Raffles City could have an additional 40,307 sqf of retail space with S$10m of revenue per annum. While CCT is on track to meet our FY07 DPU estimates, CCT would need to some yield enhancing acquisitions to achieve our FY08 DPU forecast as we have factored in some acquisitions in our model.
One George Street could be a potential acquisition target. In 2007, most of the acquisitions for office properties were made by private property funds. In the active secondary market, capital values have risen ahead of rental rates, resulting in yield compression. With the current low passing rental, yield accretive deals are hard to come by for the reits. Looking at Capitaland portfolio of office assets, we reckon that One George Street (OGS) could be a potential target for CCT. Capitaland recently acquired the balance 50% stake in OGS for S$600m or S$2700 psf. While passing yield at OGS may be too low for a direct injection into CCT, with income support or similar financial arrangements, OGS could be structured into a yield accretive acquisition.
Maintain BUY with TP of S$3.04 as CCT’s diversified portfolio of prime office assets offer a good upside to the booming office sector in Singapore. Downside risks include unexpected downturn in the Singapore office market, failure to conclude any yield enhancing acquisition and higher than expected cost of funds.
CCT – SGX
Resilient portfolio to benefit from strong positive rental reversion
Singapore, 23 October 2007 – The Manager of CapitaCommercial Trust (CCT), CapitaCommercial Trust Management Limited (the Manager), is pleased to announce a distributable income of S$29.6 million to the unitholders of CCT for the financial period of 1 July 2007 to 30 September 2007 (3Q 2007). This is 52.4% higher than the S$19.4 million reported for the corresponding period in 2006 (3Q 2006).
The 3Q 2007 distribution per unit (DPU) of 2.14 cents or 8.49 cents (annualised) registers an increase of 18.9% compared to 3Q 2006 DPU of 1.80 cents or 7.14 cents (annualised). This is 12.6% higher than the forecast DPU of 1.90 cents or 7.52 cents (annualised), as stated in the CCT circular to unitholders dated 15 August 2006 (the Circular Forecast).
CCT’s DPU for the first nine months of 2007 is 6.37 cents or 8.52 cents (annualised) which translates to a distribution yield of 3.4% based on the closing price of S$2.47 per unit on 22 October 2007.
Mr Richard Hale, Chairman of the CapitaCommercial Trust Manager, said: “CapitaCommercial Trust has outperformed its forecasts consistently and continues to generate higher distribution to unitholders. This is due to our efforts in actively managing our portfolio in Singapore while looking for opportunities in Asia. CapitaCommercial Trust recently increased its investment exposure in Malaysia via Quill Capita Trust, which enlarged its portfolio size by 78% from RM276 million to RM491 million after the completion of two acquisitions in Kuala Lumpur in September 2007. In Singapore, the on-going asset enhancement work at Raffles City will generate positive returns when the works are completed by December this year. In addition, CapitaCommercial Trust’s acquisition of Wilkie Edge, if approved by unitholders at a forthcoming extraordinary general meeting, will bring the total asset size of the trust to close to S$4.8 billion. CapitaCommercial Trust will continue to actively source for more growth opportunities.”
Ms Lynette Leong, Chief Executive Officer of the Manager, added, “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. Strong leasing demand, underpinned by the robust economic performance in the Asian region continues to propel growth in the Singapore office property market. Rentals committed at our prime assets have surpassed Singapore’s highest rental rate of S$11.50 per sq ft per month during the peak of the office market in 1990. With more than 50% of our leases expiring in 2008 and 2009, we expect strong, positive rental reversion to be realised from our resilient portfolio. We will continue to drive asset quality enhancement as well as manage tenant relationships to ensure high tenant retention rates. We will also actively seek good acquisition opportunities to grow our portfolio to achieve our target asset size of S$5 to S$6 billion by 2009. These factors are expected to contribute significantly to CCT’s growth going forward.”
In the coming month, there will be an extraordinary general meeting to obtain unitholders’ approval for the acquisition of Wilkie Edge. The acquisition will offer further diversification to CCT’s portfolio given Wilkie Edge’s location in the Central Area within Singapore’s Arts, Culture, Learning and Entertainment hub.
For Raffles City, Phase I asset enhancement work is on track to complete by end of 2007 and it will add to the asset’s net property income next year. In addition, commitment for the space under asset enhancement is already close to 100%. The reconfiguration works on the ground level of Capital Tower have been completed and most of the retail outlets have started their businesses in the third quarter of 2007.
Source: SGX