Category: CCT
CCT – CIMB
Fairly valued
• On track to reach target size. In July, CCT acquired Wilkie Edge, a 12-storey mixed office, retail and serviced apartment development from its parent CapitaLand for S$182.7m. We believe CCT is on track to meet its target asset size of S$5.5bn-6bn by 2009.
• Consolidation of Malaysian exposure. CCT has redeemed its junior bonds in Aragorn ABS Berhad, which owns Wisma Technip. Following this, it has limited its exposure in Malaysia to a 30% stake in Quill Capita Trust (QCT).
• Drivers of property income remain strong. An expected rise in office rentals over the next two years, asset enhancement initiatives, increased property-development potential and acquisitions should continue to drive CCT’s growth over FY07-09.
• Increasing exposure to retail sector. CCT has been growing the retail component of its portfolio. We view this positively as increased exposure to the retail sector could lend stability and sustainability to CCT’s growth in the longer term.
• Target price reduced to S$2.75 from S$3.00; downgrade to Neutral. We have lowered our DPU estimate for FY07 by 6% following adjustments to our rental escalation assumptions (our previous estimates were slightly aggressive). We have, however, raised FY08 DPU estimate by 2% on expected rental reversions in Raffles City. Our target price, still based on DDM, has been lowered from S$3.00 to S$2.75, as we now use a higher cost of equity of 5.3% (vs. 5% previously). Downgrade to Neutral from Outperform given the lack of near-term catalysts and limited upside.
CCT – SGX
PROPOSED ACQUISITION OF WILKIE EDGE – OPTION EXERCISED BY THE ASCOTT GROUP TO LEASE THE SERVICED APARTMENTS
1. On 20 July 2007, CapitaCommercial Trust Management Limited (the “Manager”) announced on behalf of CapitaCommercial Trust (“CCT”) the proposed acquisition by CCT’s trustee, HSBC Institutional Trust Services (Singapore) Limited (the “Trustee”),of a mixed development known as “Wilkie Edge” at No. 8 Wilkie Road Singapore 228095 (the “Property”). The development is situated on Land Lot No. 230C of Town Subdivision 19. The vendor of the Property is CapitaLand Selegie Private Limited (“CSPL”). Completion of the proposed acquisition is conditional upon, inter alia, approval by unitholders of CCT at an extraordinary general meeting to be convened by 30 November 2007 or such other date as CSPL and the Trustee may agree. Such approval is required under the Listing Manual and under the Property Funds Guidelines.
2. The Manager is now pleased to announce that CSPL has exercised the option to give notice (the “Vendor Nomination Notice”) to the Trustee to enter into an agreement (the “Agreement for Lease”) to facilitate the grant of a lease (the “Lease”) of the serviced apartment component of the Property (the “Serviced Apartments”) in favour of its nominee, Ascott Scotts Pte Ltd (the “Nominee”). The Nominee is an indirect wholly-owned subsidiary of The Ascott Group Limited.
3. Following the Vendor Nomination Notice, CSPL, the Trustee and the Nominee have entered into the Agreement for Lease.
4. The Agreement for Lease is for a leasehold term commencing on the earlier of the date on which the Nominee takes possession of the Serviced Apartments or the date falling 14 days after notice to take possession is issued on the Nominee, and ending on 19 February 2105.
5. The lease consideration of S$79,300,000 (the “Lease Consideration”) for the Serviced Apartments was arrived at on a willing-buyer willing-seller basis.
6. For the proposed acquisition of the Property, the Manager has commissioned an independent property valuer, CB Richard Ellis (Pte) Ltd (“CBRE”) and the Trustee has commissioned an independent property valuer, Jones Lang Lasalle Property Consultants Pte Ltd (“JLL”) to value the Property (including the Serviced Apartments). CBRE certified on 16 July 2007 that the open market value of the Property and the Serviced Apartments is S$262,000,000 and S$79,300,000 respectively. JLL certified on 17 July 2007 that the open market value of the Property and the Serviced Apartments is S$260,500,000 and S$80,500,000 respectively.
7. The obligation of the Trustee to grant, and the obligation of the Nominee to take, the Lease of the Serviced Apartments is conditional upon, inter alia, the following conditions being fulfilled by 30 November 2007 (or such other date as the parties may agree):
7.1 (where required by the Singapore Exchange Securities Trading Limited) the obtaining of approval by the shareholders of The Ascott Group Limited at an extraordinary general meeting for (i) the Nominee’s entry into the Agreement for Lease and (ii) the Nominee’s acceptance of the Lease, on the terms and subject to the conditions set forth in the Agreement for Lease and the Lease, respectively; and
7.2 the obtaining by the Trustee of the approval of the President of the Republic of Singapore (as head lessor of the Property) for the lease of the Serviced Apartments to the Nominee for the Term of the Lease.
8. Upon the execution of the Agreement for Lease, the Trustee’s purchase consideration for the Property is reduced by the Lease Consideration from S$262,000,000 to S$182,700,000 (the “Revised Purchase Consideration”). If the Agreement for Lease is subsequently annulled or terminated, or deemed annulled or terminated pursuant to the provisions thereof and the Trustee ceases to be obliged to enter into the Lease, the Trustee shall, in addition to the Revised Purchase Consideration, pay to CSPL an amount equal to the Lease Consideration.
9. A copy of the Agreement for Lease is available for inspection during normal business hours at the registered office of the Manager at 39 Robinson Road, #18-01 Robinson Point, Singapore 068911, for a period of 3 months commencing from the date of this Announcement.
REITs – UOBKH
Mixed Performances In Turbulent Times
Growth was 1H07 theme. For the most part of this year, growth has been the main theme of the real estate investment trust (REIT) sector. The best-performing REITs for 1H07 were high-growth REITs such as CapitaRetail China Trust (CRCT), Capital Mall Trust (CMT) and CDL Hospitality Trust which saw returns in excess of 40%. As the market has turned cautious with the bottoming out of interest rates in April and May, most REITs have fallen from their highs in May and June. The recent correction has resulted in the decline of most REITs.
Boring REITs offer capital protection. In turbulent times, the market’s appetite for risk falls sharply and risk premiums shoot up. The focus then shifts from growth to capital protection and income preservation. Investors should consider boring REITs. Though less exciting, they have the lowest growth premiums built into their stock prices. We look for REITs with low price-to-book values for capital protection and high-yield REITs for income preservation. In addition, we prefer REITs with a greater focus on the Singapore economy given the latter’s safe haven status. ParkwayLife REIT (Parkway) and Macquarie MEAG Prime REIT (MMP) stand out in terms of yields and price-to-book ratios.
Avoiding logistic REITs for the time being. With slower asset appreciation and rental reversion, REITs focusing on the logistics segment rely on acquisitions to drive growth. As risk premiums go up, the increase in cost of capital makes it more expensive to fund new acquisitions on yield-enhancing terms.
Buying opportunities for the brave. The current market turbulence may represent an opportunity to pick up some high-quality REITs at depressed prices. For the bottom-fishing investor, we recommend CapitaCommercial Trust (CCT), K-REIT Asia (K-REIT), CRCT and CMT for their ability to grow organically and via acquisitions. As the market recovers, these higher-quality REITs are likely to be the first to stage a rebound. As seen in the market rebound this week, these REITs had the bigger price appreciation.
CCT – SGX
CAPITACOMMERCIAL TRUST SUBSCRIBES FOR UNITS IN QUILL CAPITA TRUST
CapitaCommercial Trust Management Limited (the “Manager”), the manager of CapitaCommercial Trust (“CCT”), wishes to announce that CCT has entered into a
subscription agreement today to subscribe for 45,432,000 units (the “Subscription Units”) in Quill Capita Trust (“QCT”).
The subscription for the Subscription Units is pursuant to an equity fund raising exercise by QCT to raise required funds to partially finance the purchase consideration for QCT’s acquisition of Wisma Technip and a part of Plaza Mont’Kiara both located in Kuala Lumpur, Malaysia.
The Subscription Units will allow CCT to maintain its proportionate unitholding in QCT, in percentage terms, at its pre-placement level. CCT has held 30% of QCT’s total units in issue since January 2007.
As required under the Malaysia Securities Commission Guidelines, units placed with
interested persons or persons connected to them must be priced at least at the weighted average market price of the units for the five market days immediately prior to the price-fixing date. Accordingly, the issue price of the Subscription Units has been fixed at RM1.52 which is the five-day volume weighted average market price of QCT units immediately prior to the price-fixing date of 15 August 2007. Hence, the total consideration for the Subscription Units is RM69,056,640 (approximately S$30.3 million)1.
1 Based on exchange rate of S$1 : RM2.27726