CapitaCommercial Trust

CapitaCommercial Trust: 1Q11 results in-line.
Net property income of $69.9m fell 10% yoy due to reduced revenue from Starhub Centre and Robinson Point, higher vacancies in 6 Battery Road (due to ongoing asset enhancement works), and negative rental reversions as peak 2008 rents roll over. Portfolio occupancy fell 1.1 ppts to 98.2% and avg office passing rents dipped 8% to $7.94 psf. DPU of 1.84cts (-4.6% yoy), which translates to annualized yield of 5.2%...

Nevertheless, the proposed 40/60 JV with parent, CapitaLand to redevelop Market Street Carpark into a Grade A Office building should take centre stage. The JV structure is to accommodate the restriction of not more than 10% of its asset base in development projects (~$600m). Est total project cost is $1.4, or ~$1900 psf based on ~720k sf of NLA . This is lower than recent transacted prices for buildings like Capital Square, One Finlayson Green and Prudential Towers…

Expected completion is by end of 2014, when supply is expected to be relatively tight. Mgt guides for 6% stabilised yield, translating to net rent of ~$9.50psf/mth, or gross rents of ~$12–13psf/mth, in line with Street estimates. The majority of Street views this redevelopment positively.
CCT’s current gearing stands at 27.8%, and mgt does not expect gearing upon completion of the project to exceed 31%...

This would provide CCT with headroom of up to $1b for further acquisitions before reaching ~40% gearing.
The majority of Street maintains their Buy/ Hold ratings, with only JPM at Underweight. Street TP ranges btwn $1.40 -1.81.