InvestIdeas

From UOB:-
Target: 2.63

Renewed long-term lease with HSBC

CapitaCommercial Trust (CCT) has entered into a seven-year renewal lease agreement commencing on 30 Apr 2012 (after expiry of existing lease) and expiring on 29 Apr 2019 for a total contract value of S$143.1m. The lease agreement involves capex of S$7m to be incurred by CCT for improvement
work on HSBC Building, which is expected to commence in late-08.

We estimate that the contract value of S$143.1m represents an average rental of S$8.50psf pm, much higher than the existing passing rent of S$3.63psf pm from HSBC Building. HSBC will bear most property operating expenses such as maintenance, utilities and property tax for HSBC Building.

We view the renewed contract as a positive development although HSBC Building contributed only 3.1% of revenue in 1Q08.

CapitaMall to buy Singapore property for $619 mln

SINGAPORE, May 22 (Reuters) - Singapore-listed REIT CapitaMall Trust said it is buying office development, The Atrium@Orchard, for S$839.8 million ($619 million) from the government through its trustee HSBC Institutional Trust Services.

CapitaMall said the total acquisition cost, including purchase price and fees, would be S$850 million and would be funded by a mixture of debt and convertible bonds.

The development, of two office towers of seven and 10 storeys, is located at Singapore's main shopping belt along Orchard Road, CapitaMall said in a statement on Thursday.

It also has some ground floor retail space and is connected to a major train interchange.

From UOB-Kay Hian:-
From UOB-Kay Hian :-

CapitaCommercial Trust (BUY/S$2.39/Target: S$2.63)

• CCT is well positioned to benefit from positive rental reversion with 29.4% of its leases for office space up for renewal in 2008 and 2009.

• We estimate that the lease for HSBC Building was renewed at an average rental of S$8.50psf pm in early May, much higher than the existing passing rent of S$3.63psf pm.

• CCT is the largest office REIT and provides diversified exposure to the Singapore office market. It provides FY09 distribution yield of 5.66%.

Not vested.

CapitaCommercial Trust - JPMorgan has downgraded CapitaCommercial Trust to neutral from overweight and cut its price target to S$2.10 saying that the firm's short-term and medium-term funding needs will likely cap its stock performance in the next year.

Not vested. From Kim Eng:-

CapitaCommercial Trust – Initiating Coverage (Wilson, DID: 64321454)
Previous Day Closing price: $1.99
Recommendation: BUY
Target price: $2.46
♦
Top landlord of prime Grade A office space
♦
Rental reversion to provide upside in yields

CapitaCommercial Trust (CCT) is currently the top listed commercial landlord in Singapore, with over 2.8m sq ft of net lettable Grade A office space (about 10% of the total office stock in the CBD and Orchard Road Corridor).

CCT’s portfolio comprises of 7 Grade A office buildings, 2 carpark developments and a 60%-stake in Raffles City. In the pipeline are Wilkie Edge (under construction) and possibly the redevelopment of Market Street Car Park into a prime office development.
♦
Strong synergies with CapitaLand group of companies
Asking rents for office space have been increasing sharply over the past 2 years, with rental of prime Grade A office space in the CBD averaging $16.00 psf in 4Q07, up about 171% from $5.90 psf in 4Q05.

Current average gross rentals for CCT’s key properties (like 6 Battery Road and Raffles City Tower) are about 50% off the micro-market rents and we expect further upside when the rents revert towards market levels as existing leases expire.
♦
Market Street is a trump card in hand
CCT has been a major beneficiary of the strong pipeline of properties developed by CapitaLand. Following its listing, CCT has further acquired the HSBC Building, Wilkie Edge and One George Street from CapitaLand. Together with its sister REIT, CapitaMall Trust, CCT has also been creating value at Raffles City from asset enhancement initiatives.
♦
Trusty REIT
In January 2008, CCT announced that it had been granted an Outline Planning Permission from the URA to redevelop Market Street Car Park into an office block with a plot ratio of up to 14.49x. We estimate that the redevelopment would cost CCT around $1.25b, but would create value of about $280m for unitholders, or $0.20 per unit. While CCT recently announced that it will defer its decision on the redevelopment to no earlier than mid-2009, we think that it remains a valuable option to CCT.

CCT offers exposure to quality assets, managed by an experienced and proven REIT manager. Its gearing (debt to deposited assets) remains at a comfortable 40%. With the gearing for REITs capped at 60%, there is some headroom for future acquisitions. FY09 yield of 6.2% is an attractive proposition given its underlying quality assets. Based on our DDM valuation, we have a target price of $2.46 for CCT. Initiate with a BUY recommendation.

Not vested.

CIMB cuts target price to S$2.36 (from S$2.91)

Goldman cuts target price to S$2.68 (previously S$2.80)

DBS cuts target price to S$2.23 (previously S$2.93)

Credit Suisse keeps target price of $2.79

If I din remember wrongly, CCT together with SPC are on Goldman's "Conviction List". But they seemed to have cut their price targets for quite a number of S-Reits recently.

Perhaps, Singapore Land is a better choice compared to CCT.
Though, it does not give high dividends.

CCT Posts 22.7% DPU Increase For 1H08
CapitaCommercial Trust (CCT) has achieved a distributable income of $71.9m for the six months ended 30 June 2008. This translates to a distribution per unit (DPU) of 5.19 cents, outperforming 1H07 DPU of 4.23 cents by 22.7%. The results were underpinned by Singapore’s steady office demand, and exceed the manager’s forecast by 4.2%. The annualised 1H08 DPU of 10.44 cents would provide a distribution yield of 5.5% based on the closing price of $1.91 per unit on 22 July 2008. CCT’s distributable income for 1H08 of $71.9m is $2.9m or 4.3% higher than the forecast distributable income for the same period.

A leader in asset enhancement

BUY S$2.75
Fair Value: S$3.21

Key strength lies in asset management and enhancement. The tight credit market has raised concerns that REITs could face a tougher time making yield-accretive acquisitions and thus resulting in slower DPU growth ahead. For CMT, investors should focus on its growth via asset management and enhancement instead, which can potentially generate between 8% to 25% return on investment. CMT had proven its astuteness in the area of asset enhancement initiatives (AEIs) and with its ongoing AEIs, CMT should still be able to grow its DPU even if there are no new future acquisitions and a freeze in rental rates.

Big is beautiful. Bigger REITs have comparative advantage over smaller REITs in the area of AEIs, as the latter may face a lower limit on borrowings, which is partly determined by asset value, and can not afford similar largescale AEIs. Bigger REITs such as CMT can leverage on their size to undertake larger scale AEIs that can generate higher incremental value
without significantly affecting short term distribution.

Debt expiry profile. CMT will have S$936.2m of borrowings that need to be refinanced in 2008 and 2009, with the majority due in August 2009. Part of these can be refinanced using the untapped portion of its multicurrency medium term note programme. For the remainder, we do not think that there will be any serious issue in terms of refinancing with the backing of a strong sponsor – CapitaLand. CMT has also locked in the swap rate for five years for its S$320m term loan that is due for refinancing in August 2009, which protects it from any future increase in interest rate.

Resume coverage with BUY. Based on our RNAV valuation and factoring in The Atrium, we peg the fair value estimate for CMT at S$3.21, at par to its RNAV, which provides a potential upside of 16.8% from its last price of S$2.75 and offers FY08 and FY09 distribution yields of 5.3% and 6.3%, respectively. Share price has corrected 16.9% over the last 3 months, and CMT had underperformed the rest of the retail REITs and this brought its distribution yield closer to the rest of the retail REITs. We believe CMT deserves to trade at a premium to its peers, given its size advantage and visible growth from AEIs. We resume coverage on CMT with a BUY rating.