CCT earnings up 7.8% in 2Q12

CapitaCommercial Trust squeezed out income from higher tax savings and still-growing office and retail leases and renewals.

Here's more from Maybank Kim Eng:

1H12 earnings stronger than expected. CCT’s 2Q12 net property income rose by a better-than-expected 7.8% YoY to SGD75.2m, while the distributable income increased by 7.5% YoY to SGD58.5m, mainly attributable to lower property tax and the addition of Twenty Anson. DPUs for 2Q12 and 1H12 grew by 7% and 5% to 2.06 cents and 3.96 cents respectively. We think this is a creditable showing despite the challenging leasing market.

Retrospective tax savings. Property tax in 2Q12 was SGD1.7m (or 23.6%) lower than a year before, due to vacancy refund and successful appeal of annual value assessment. For 1H12, the tax savings amounted to SGD4.2m, or about 0.15 cents/unit. Management said that they will continue to work with the tax authorities to ensure the annual value assessment remains fair.

Positive leasing activity in 1H12. In 1H12, CCT signed new office and retail leases and renewals of ~180,500 sq ft, with demand still mainly from financial services companies, although demand is still restricted to small and mid-sized office space. New tenants and existing ones seeking additional space for expansion accounted for approximately half of those spaces. Compared with 1Q12, the average office portfolio rent slid marginally from SGD7.45 to SGD7.39 psf. With another 5.7% of its office NLA up for renewal for the rest of this year, the impact from any potential negative rental reversion is likely to be limited.

Balance sheet’s sound as a pound. On the back of a marginal 1% growth in its portfolio valuation, CCT’s gearing edged down to 30.1% this quarter from 30.5%. There are no refinancing needs for the rest of this year, and the debt maturing in FY13 is a very manageable SGD197m. CCT’s average cost of debt stayed low at 3.1%.