CapitaCommercial Trust (CCT) reported 4Q12 distributable income of S$58.3m - 7.0% higher YoY. This cumulates to a FY12 distributable income of S$228.5m, up 7.4% YoY, which is within expectations and make up 101% of our forecast. FY12 DPU is 8.04 S-cents; distribution yield is 4.7% based on last closing price. With net gearing at a relatively low 30.1%, we note that CCT has significant debt headroom of ~S$1bn for acquisitions and asset enhancements. Though management would likely be cautious on the acquisitions front due to the criteria for yield accretion, with financing costs at low levels currently and CCT trading at 4.7% yield, we believe that acquisitions are workable in current conditions and that there is meaningful growth potential ahead. Maintain BUY with a higher fair value estimate of S$1.80, versus S$1.75 previously, as we update our model for firmer cap rates.
No surprises in FY12 results
CapitaCommercial Trust (CCT) reported 4Q12 distributable income of S$58.3m - 7.0% higher YoY. This cumulates to a FY12 distributable income of S$228.5m, up 7.4% YoY, which is within expectations and make up 101% of our forecast. FY12 DPU is 8.04 S-cents; distribution yield is 4.7% based on last closing price. The growth in distributable income was mainly due to higher contributions from HSBC Building and the 20 Anson acquisition, and partially off-set by negative reversions at 6 Battery Rd and the redevelopment of the Market Street Car Park.
Office rentals expected to ease downward trend
Portfolio occupancy remained stable at 97.2% as of end 4Q12, versus 97.1% in the previous quarter. Average rentals of remaining leases expiring in 2013 are at S$7.48 - significantly lower than current Grade A levels of S$9.58 - and we see continued positive rental reversions over FY13, particularly as office market rentals are expected to ease its downward trend due to the limited supply in FY13.
OGS yield protection agreement to end this year
We highlight that CCT has received S$18.1m in FY12 for One George St (OGS)’s yield protection agreement which is set to expire in Jul 2013. Given that Wong Partnership, a large tenant at OGS, is expected to move out this year, we believe CCT is unlikely to improve OGS’s NPI significantly in FY13 and would see a hit to FY13 earnings as the yield protection agreement ends, though this would be offset by full year contributions from HSBC Building and Twenty Anson.
Potential for more growth ahead
With net gearing at a relatively low 30.1%, we note that CCT has significant debt headroom of ~S$1bn for acquisitions and asset enhancements. Though management would likely be cautious on the acquisitions front due to the criteria for yield accretion, with financing costs at low levels currently and CCT trading at 4.7% yield, we believe that acquisitions are workable in current conditions and that there is meaningful growth potential ahead. Maintain BUY with a higher fair value estimate of S$1.80, versus S$1.75 previously, as we update our model for firmer cap rates.
CapitaCommercial Trust (CCT) reported 4Q12 distributable income of S$58.3m - 7.0% higher YoY. This cumulates to a FY12 distributable income of S$228.5m, up 7.4% YoY, which is within expectations and make up 101% of our forecast. FY12 DPU is 8.04 S-cents; distribution yield is 4.7% based on last closing price. The growth in distributable income was mainly due to higher contributions from HSBC Building and the 20 Anson acquisition, and partially off-set by negative reversions at 6 Battery Rd and the redevelopment of the Market Street Car Park.
Office rentals expected to ease downward trend
Portfolio occupancy remained stable at 97.2% as of end 4Q12, versus 97.1% in the previous quarter. Average rentals of remaining leases expiring in 2013 are at S$7.48 - significantly lower than current Grade A levels of S$9.58 - and we see continued positive rental reversions over FY13, particularly as office market rentals are expected to ease its downward trend due to the limited supply in FY13.
OGS yield protection agreement to end this year
We highlight that CCT has received S$18.1m in FY12 for One George St (OGS)’s yield protection agreement which is set to expire in Jul 2013. Given that Wong Partnership, a large tenant at OGS, is expected to move out this year, we believe CCT is unlikely to improve OGS’s NPI significantly in FY13 and would see a hit to FY13 earnings as the yield protection agreement ends, though this would be offset by full year contributions from HSBC Building and Twenty Anson.
Potential for more growth ahead
With net gearing at a relatively low 30.1%, we note that CCT has significant debt headroom of ~S$1bn for acquisitions and asset enhancements. Though management would likely be cautious on the acquisitions front due to the criteria for yield accretion, with financing costs at low levels currently and CCT trading at 4.7% yield, we believe that acquisitions are workable in current conditions and that there is meaningful growth potential ahead. Maintain BUY with a higher fair value estimate of S$1.80, versus S$1.75 previously, as we update our model for firmer cap rates.
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