HOLD; S$1.48; CCT SP
One George Street- yield income support expires
Price Target : 12-Month S$ 1.62 (Prev S$ 1.72)
•2Q13 results in line
•Yield income support for One George Street has expired
•New AEI works at Capital Tower announced
•Maintain HOLD, TP revised lower to S$1.62
Stable performance. CCT announced 2Q13 gross revenue of S$97.5m (+1.8% y-o-y), NPI of c.S$75m (-0.5%) and distributable income of S$59.6m (+1.9%). This translates to a quarterly DPU of 2.07Scts and 1H DPU of 4.01scts (+1.3% y-o-y). The slight uptick in gross revenue was attributable to better performances from Six Battery Road and higher rental contribution from HSBC Building. CCT signed c.192k sqft of office space commitment, of which c.40% were new tenants. Management reported an unweighted average reversion rate of S$9.93 psf pm, higher than the market rate of S$9.55 psf pm (as provided by CBRE).
Expiry of yield protection income for One George Street to negatively impact 2H13 earnings. Management guided that they expect the loss of yield protection income for 2H13 to be c.S$8.0m. However, they have indicated a willingness to utilise a portion of their retained distributable income from Quill Capita Trust (amounting to c.S$11m) in order to stabilise the DPU going forward. As plans are still tentative at this point, we have not factored any additional payout in our DPU projections. In addition, the decline should also be mitigated by an improvement in our portfolio occupancy assumption to 95-98% from the present 95.8%. Looking ahead, we expect office rents to be rather flat over the next 12 months as new demand remains bite-sized.
S$40m AEI works at Capital Tower. CCT will also be conducting S$40m worth of AEI works at Capital Tower which will focus on the upgrading of common areas and certain technical specifications of the building, with a target of achieving a ROI of 7.8%, upon completion by 2Q15.
Maintain HOLD, TP S$1.62. We made slight downward adjustments to our rental assumptions for CapitaGreen to $12psf/mth as well as raised our risk free rate assumptions to c.2.7% from 1.8%, to reflect the higher rate expectations going forward. The stock is offering of 5.4% for FY13 and FY14, at the lower end of peers’ comparison range. With relatively minimal DPU growth to act as share price catalyst, we maintain our HOLD call.
Publish date: 18/07/13