CCT open to sale of Market Street Car Park

Business Times - 24 Jul 2008

CCT open to sale of Market Street Car Park

Reit reports 23% rise in Q2 distributable income to $36m

By EMILYN YAP

CAPITACOMMERCIAL Trust (CCT) says it is 'open to all options' when it comes to plans for Market Street Car Park (MSCP), and these include selling the site.

The update was given at CCT's results briefing yesterday. Supported by strong rental reversions, the trust reported distributable income of $36.06 million for the second quarter ended June 30, 2008, up 23.2 per cent from the same period last year. Q2's distribution per unit (DPU) of 2.6 cents is 22.6 per cent higher than in Q2 2007.

CCT has obtained outline planning permission from the Urban Redevelopment Authority to redevelop MSCP into an office tower for $1 billion to $1.5 billion.

In April, CCT manager CapitaCommercial Trust Management Limited (CTML) said that it was evaluating the project's financial viability and funding structure, and would not decide on redevelopment anytime before mid-2009. It cited the project's size, rising construction costs, financial market volatility and the uncertain development premium as reasons for the deferment.

Responding to a query on whether CCT would consider selling MSCP instead, CTML's chief executive Lynette Leong said: 'We are open to all options.'

According to her, the development premium remains uncertain, and construction costs are still rising.

Ms Leong pointed out that the redevelopment decision may still be subject to unitholders' approval. Even if they were to reject the proposal, MSCP's value has risen because of its redevelopment potential. 'If it makes sense to sell it, why not? We will not rule out that option,' she said.

For H1 2008, CCT's distributable income of $71.92 million also outperformed the year-ago period's by 22.9 per cent. This translates to a DPU of 5.19 cents, which is 22.7 per cent more than in H1 2007 and exceeds the manager's forecast by 4.2 per cent.

The annualised H1 2008 DPU of 10.44 cents represents a distribution yield of 5.5 per cent based on Tuesday's closing unit price of $1.91.

'The outstanding numbers were largely driven by strong organic growth due to the prime quality of our assets augmented by our proactive leasing and the high standard of our property management,' said Ms Leong.

Lease renewals and new leases contracted in H1 2008 for CCT's office space registered an average rental rate increase of 193 per cent over last contracted rates, and there is still potential upside. 'Many of our expiring leases have rentals that are significantly below market and are being reviewed to market as they renew,' she said.

CCT's gearing ratio as at July 11 was 35.7 per cent, and this took into account the acquisition of 1 George Street. The property will contribute to CCT's income from Q3 2008, and brings its asset size close to $7 billion today.

In its latest asset valuation exercise, CCT's portfolio as at June 1 stood at $5.57 billion, about $463 million higher than at Dec 1, 2007. The portfolio comprised CCT's existing properties, its 60 per cent interest in Raffles City through RCS Trust, and excludes 1 George Street.

'Given Singapore's attractiveness as a global city and tight office supply, we are confident of exceeding our forecast DPU of 10.61 cents for the financial year ending 2008,' said CTML's chairman Richard Hale.

CCT will continue to seek quality and yield accretive assets, though at a more deliberate pace, given the current market environment.

CCT units rose 3.7 per cent or seven cents yesterday to close at $1.98.

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