CCT yield has little room for growth: Maybank

At least until CapitaGreen launches 2015.

Here's more from Maybank Kim Eng:

Resilient quarter. CCT’s 3Q12 distributable income came in at SGD57.9m (+12% YoY; -1% QoQ), translating to a DPU of 2.04 cents. 9M12 distributable income stood at SGD170.2m, (77.5% of our full-year estimate), slightly ahead of expectations largely due to lower property tax and finance costs. CCT has outperformed the FTSE REIT Index by ~15% YTD and is expensive, in our view.

Upturn in average office portfolio rent. After seven quarters of decline, CCT’s average office portfolio rent improved from SGD7.39 psf/mth in 2Q12 to SGD7.53 psf/mth. Of the new and renewed leases of 139,000 sq ft signed in 3Q12, 59% are new tenants from various business sectors. Companies in the manufacturing and distribution space accounted for the bulk of the new leases signed at 28%. Future rental reversions likely mitigated. CCT’s office lease expiry profile is fairly well-spread, with 28.8% by monthly gross rental income expiring in 2013. The bulk of the expiries are expected to come from Capital Tower and One George Street, but with the expiring leases there averaging less than SGD8.00 psf/mth, we think that the risks of negative rental reversions are mitigated, with limited upside in our view. 

Continually seeking value enhancements. As part of its portfolio reconstitution strategy, CCT (together with CMT) will be spending a CAPEX of SGD34.7 to upgrade Raffles City Tower. The objective is to provide the office tower with a facelift to maintain a high occupancy rate. The AEI is expected to be completed by 2Q14 for an estimated incremental net property income of SGD3m per annum. 

Upside limited. While the management has done well to keep up CCT’s occupancy rates and turn the average portfolio rent around, the office sector in general still faces challenges amid global economic uncertainties and ample new supply. We see little room for growth on the FY13F DPU yield of 5% until CapitaGreen comes onstream in 2015.