CCT – CIMB
Refinancing secured
S$580m refinancing secured on 3-year term loan
All-in cost of debt estimated within 4.5%. CCT announced last night that it had secured refinancing for its S$580m loan that will be due in March 2009 with a 3-year loan term. Bankers involved were DBS, Standard Chartered, United Overseas Bank and The Bank of Tokyo-Mitsubishi UFJ. Cost of debt for this refinancing was not revealed but all-in interest cost was “well within the projections assumed in CCT’s circular” on One George Street, which was 4.4% for 2009. (This assumption excludes debt taken for Raffles City which is 4.2%). We estimate all-in cost of debt within 4.5%. S$390m of the S$580m, or about 67% of the loan is on fixed rates due to earlier interest swaps put in place till 2011.
Only one asset secured with the refinancing. Additionally, the refinancing was only secured on one asset, Capital Tower, vs the existing debt which was secured on seven properties (ie Capital Tower, 6 Battery Road, Robinson Point, Starhub Centre, Bugis Village, Golden Shoe Car Park and Market Street Car Park)
No redevelopment for Market Street Car Park. CCT also announced that it would abort its plan to redevelop Market Street Car Park into a office development, “in line with the need to conserve cash in such turbulent economic times”. CCT will also be moving on to enter into longer term leases with the retail tenants in the property, most of which are on short leases. Asking retail rents for the property range between S$12-16psf/mth.
Comments
Positive view, in line with expectations. The announcement is in line with our earliere xpectations that CCT will be able to refinance with a bank financing, rather than a rights issue. We take a positive view of the refinancing as (1) estimated all-in cost of debt for CCT remains within 4.5%, marginally lower than our more conservative assumption of 5%; (2) only one asset secured vs. seven from the existing debt; and (3) ability to secure a simple bank loan rather than a dilutive rights issue. The appearance of two local bankers (DBS and UOB) lends a sense of certainty and stability to the deal. The refinancing is likely to have a positive effect on the Reit sector as a whole. However, this announcement is likely to be the last price catalyst for CCT this year as we expect more negative news flow on falling office rents and declining office space demand. The decision to abort Market Street Car Park development did not come in as a surprise, and this had not been factored in our earlier assumptions.
Valuation and recommendation
Maintain Outperform at unchanged target price of S$1.08 (unchanged discount of 10.4%). We maintain our view that CCT is fairly valued at our target price of $1.08, which reflects a bear scenario. However, this announcement is likely to be the last significant price catalyst for CCT this year as we expect more negative news flow on falling office rents and declining office space demand.
CCT – BT
CapitaCommercial Trust lands $580m refinancing
Separately, it aborts plans to redevelop Market Street Car Park
CAPITACOMMERCIAL Trust (CCT) has secured refinancing for $580 million of loans due in March 2009.
DBS Bank, Standard Chartered Bank, United Overseas Bank and The Bank of Tokyo-Mitsubishi UFJ will provide a secured three-year term loan of up to $580 million for CCT.
The trust intends to draw down the loan in March 2009 to refinance the borrowings under its commercial mortgage-backed securities (CMBS).
CCT also said yesterday that it would abort the redevelopment of Market Street Car Park into a Grade A office and commercial building.
The trust said in April last year that the decision on the planned redevelopment would be made only after mid-2009.
But after taking into consideration the uncertain market outlook, tight credit conditions, high redevelopment cost and significant size of the project, CCT’s manager has decided to abort the project immediately.
When the redevelopment was first announced in January 2008, CCT said that the total project cost could range from $1 billion to $1.5 billion, depending on the development premium.
Analysts said that it was no surprise that CCT has secured refinancing, as it is backed by property giant CapitaLand.
‘The news is definitely very positive for CCT as well as for the Reit (real estate investment trust) sector as a whole,’ said DMG & Partners Securities analyst Brandon Lee.
In a note yesterday, Kim Eng Research chose CCT as its top pick in the S-Reit sector.
‘We believe that CCT will be able to refinance its debt without much hassle, although inevitably at a higher rate due to the tight credit conditions,’ the firm said before CCT announced its refinancing deal.
CCT said that the all-in interest cost for the loan is well within the projections assumed in a circular to unitholders dated June 9, 2008.
The circular assumed an average interest rate of about 4 per cent per year (including margins and excluding the amortisation of debt issuance expenses) for the 2009.
CCT said that the CMBS is secured by seven of its properties. However, the term loan will only be secured by just one property – Capital Tower.
‘We believe that the banks’ willingness to lend to CCT with security over just one asset, Capital Tower, is an affirmation of their confidence in the quality and value of CCT’s portfolio as well as its bluechip tenant base,’ said Lynette Leong, chief executive of the trust’s manager.
As a result, out of CCT’s portfolio of 11 properties, eight properties with a total asset value of $2.8 billion will be free of any encumbrance.
This will provide the trust with financial flexibility in managing its capital and balance sheet, said Ms Leong.
And as for the decision to abort the redevelopment of Market Street Car Park, Ms Leong said that the move was in line with the need to conserve cash, adding: ‘This decision provides certainty to our investors in removing any overhang in capital requirement.’
CCT can also now enter into longer-term leases and adopt longer-term plans through repositioning the retail tenant mix, she said.
CCT shares lost 4.5 cents, or 4.6 per cent, to close at 93.5 cents yesterday amid a broad market pullback.
CCT – BT
CapitaCommercial Trust (CCT) on Tuesday said it has entered into a facility agreement with DBS Bank, Standard Chartered Bank, United Overseas Bank Limited and The Bank of Tokyo-Mitsubishi UFJ to secure a three-year term loan of up to S$580 million.
The term loan will be drawn down in March 2009 to refinance the borrowings under the S$580 million commercial mortgage-backed securities (CMBS), the property trust said.
In addition, the trust’s manager has decided to abort the redevelopment of Market Street car park into a Grade A office and commercial building. Although the manager said in April 2008 that the decision on the planned redevelopment would be made only after mid-2009, after taking into consideration the uncertain market outlook, tight credit conditions, high redevelopment cost and significant size of the project, the manager has decided to abort the project immediately, CCT said today.
The CMBS is secured by seven properties of CCT – Capital Tower, 6 Battery Road, Robinson Point, Starhub Centre, Bugis Village, Golden Shoe Car Park and Market Street Car Park. However, the term loan will only be secured by a mortgage and other securities relating to Capital Tower, CCT said.
‘We have always adopted a proactive approach for our capital management strategy and we are pleased to secure the banks’ commitment for the refinancing in advance of the debt maturing in March 2009,’ said Lynette Leong, chief executive of the trust’s manager.
‘We believe that the banks’ willingness to lend to CCT with security over just one asset, Capital Tower, is an affirmation of their confidence in the quality and value of CCT’s portfolio as well as its blue-chip tenant base.’
As a result, out of CCT’s portfolio of eleven properties, eight properties with a total asset value of S$2.8 billion will be free of any encumbrance. This will provide the trust with financial flexibility in managing its capital and balance sheet, Ms Leong said.
REITs – BT
Reit model under pressure
SINGAPORE-listed real estate investment trusts (Reits) are now victims of their own success.
Over the past three years, most Reits here have taken an aggressive growth path, snapping up expensive properties and pushing up rentals in their properties as they took advantage of the property boom. This has allowed them to increase net property incomes and deliver good dividends to their unitholders.
But now, the good times have come to an end, and it is unclear how these Reits will deliver the kind of returns shareholders have gotten used to.
When reporting their Q3 results, the Reits admitted that growth through acquisitions will slow, what with the current credit squeeze making merger and acquisitions (M&As) more difficult and expensive across all sectors. The Reits said they will look to organic growth, such as enhancing their existing lettable space in search of higher rents.
But how much organic growth there can be under these conditions is debatable.
Retail Reits, for example, increase their property incomes in three ways – from acquisitions, through rental increases after they enhance their properties, and increased sales from their tenants, which they typically take a cut of.
But now, all three avenues for property income growth appear to be blocked. Acquisition growth, as mentioned, is no longer as viable. Retail sales are expected to take a beating this year as consumers cut back on spending as concerns over job and wage security take hold. Because of this, landlords, who typically take a percentage of turnover as part of the rent, will also see takings fall.
And rents will fall, as tenants try to bring landlords back to the negotiating table to ask for more manageable rates. ‘A prolonged depression in consumer spending could affect retailers’ ability to service their rents and we think it is possible that more retailers would renegotiate for lower rental rates, and retail mall managers may have to give in to avoid a high turnover in tenants,’ noted OCBC Investment Research in a recent report. As one market observer put it, ‘Reits can’t really squeeze the tenants anymore or they will just simply close shop.’
In 2009, CB Richard Ellis reckons that prime Orchard Road rents could contract 5-10 per cent in just the first half of the year. At prime suburban malls, a 2-3 per cent decline is likely, the property consultancy said. Prime Orchard Road rents fell 1.9 per cent quarter-on-quarter in Q4 2008, while prime suburban rents shed one per cent, the firm’s data showed.
The same trend holds true for the office and industrial sectors. CBRE’s data showed that average Grade A and prime office rental values in Singapore are estimated to have slipped about 20 per cent in Q4 2008. More falls are expected this year. Likewise, rents for industrial space could see double-digit percentage falls, analysts have said.
With retail, office, and – to a lesser extent – industrial Reits, having raised rentals quickly over the last few years, tenants are finding themselves in a tough spot during these trying times. Office rents, for example, nearly doubled in 2007, rising 96 per cent in the Grade A category and 92 per cent for prime space. That was on top of gains of 53 and 50 per cent respectively posted in 2006.
What this means is that tenants, who have been paying jacked-up rentals over the past two years, will in some cases lack the reserves to withstand the current crisis. They are also more likely to push for substantial rental decreases, which could affect the Reit model.
Jannie Tay, president of the Singapore Retailers Association, called for a drop in retail rents – in light of weaker sales – as early as September last year. Recently, she again asked retail landlords to cut rents by between 30 and 50 per cent. Reits are going to face pressure to give in.
Saizen – BT
Saizen Reit proposes rights-cum-warrants issue
SAIZEN Reit has proposed a renounceable non-underwritten rights issue with free detachable and transferrable warrants in a bid to raise $44.75 million to pay off loans and fund its operations.
The proposed rights issue is for up to 497.2 million new units in the trust at an issue price of nine cents each, on the basis of 11 rights units for every 10 units held, according to Saizen Reit manager Japan Residential Assets Manager (JRAM).
The free detachable and transferrable three-year warrant that comes with every rights share can be exercised at the same price. This means Saizen Reit will receive an additional $44.75 million if all 497.2 million warrants are exercised. In a regulatory filing on Wednesday, JRAM said that the rights issue price of nine cents represents a discount of 30.8 per cent to Saizen Reit’s last-traded price of 13 cents on Wednesday.
The company plans to use the proceeds from the rights-cum-warrants issue to repay loans and for ‘general operational purposes’.
‘While operations of Saizen Reit have been stable, reflecting the underlying strength and resilience of its residential portfolio, lenders generally favour lower leverage under the current credit environment,’ said Chang Sean Pey, chief executive officer of the manager.
Saizen Reit has 5.28 billion yen (S$82.8 million) in loans due in April this year, but said that it has sufficient cash to repay the amount. However, the trust has another 13.4 billion yen in loans that are set to mature in November and December.
Nine sets of shareholders have given irrevocable undertakings to subscribe for their respective rights-cum-warrants entitlements and mop up any rights shares that remain unsubscribed.
These include Argyle Street Management, which owns 11.5 per cent of Saizen Reit, and JRAM directors Arnold Ip, Chang Sean Pey, Raymond Wong and Yeh V-Nee. Non-shareholders Amherst Holdings Equal Chances have made similar commitments.
The rights-cum-warrants issue is subject to approval by the Securities Industry Council and the Singapore Exchange.