CCT

CCT: Uneventful 2Q13 results; 2H13 may be impacted by loss of yield protection for One George Street. DPU came in at 2.07cts, +0.5% yoy, helped by positive rent reversions and savings from lower interest cost. Distributable income inched up 1.9% to $59.6m. While gross revenue ticked up (+1.8% to $97.5m) due to better performance from Six Battery Road and higher rental contribution from HSBC Building, net property income slid (-0.5% to $74.9m) due to higher marketing and maintenance costs and given lack of property tax refunds given last year. On operating performance, portfolio occupancy rose to 95.8% from 95.3% qoq. Overall, CCT’s avg committed rent for the office portfolio continued to increase in 2Q13 from $7.83 psfpm to $7.96 psfpm. CCT has decided to embark on the upgrading of Capital Tower, which is expected to cost $40m and generate a projected return on invmt of 7.8%. The works will take place in phases while tenants are in place with scheduled completion date in 2Q15. Meanwhile, AEIs remain ongoing at Raffles City Tower and Six Battery with completion due end 2Q14 and end 2013 respectively. CCT’s balance sheet remains robust with low gearing of 28.9% and avg cost of debt at 2.8% pa. This gives the trust debt headroom of $1.2b (assuming gearing of 40%). While office leasing activities are expected to remain healthy, mgt warns that CCT’s performance will be impacted by the cessation of yield protection for One George Street on 10 Jul, as the market rental is below the yield protected gross rental rate of $11.20 psfpm. The expected loss of yield protection income for 2H13 is estimated to be $8m, but may be mitigated by positive rent reversions from other properties as well as completion of the upgrading at Six Battery Road, which would lead to better occupany. In addition, CCT has retained $10.8m of distributable income from Quill Capita Trust which may be used for future distributions to unitholders. At the last close at $1.50, CCT trades at 5.4% yield, 0.9x P/B. Closest peer, Keppel Reit, trades at 5.8% yield, 1.05x P/B.