CapitaCommercial Trust (CCT) yesterday reported a 90 per cent year-on-year jump in Q1 distributable income to $29.2 million as contributions kicked in from its acquisition of Raffles City on Sept 1 last year. Distributable income for Q1 ended March 31, 2007 was also 10.6 per cent above the trust’s own forecast.

And with more than 70 per cent of its office leases up for renewal from this year to 2009, CCT is poised to enjoy strong upside from rental reversions.

‘Over the next two years, this rental growth and the repositioning of Raffles City will contribute significantly to CCT’s income,’ said David Tan, chief executive of CapitaCommercial Trust Management Ltd (CCTML). ‘The market outlook is positive and we are confident of delivering strong performance this year.’

CCT also announced yesterday the first phase of refurbishment work at Raffles City Shopping Centre, which will cost $55.8 million and add 41,000 sq ft of net lettable retail space - a 12 per cent boost to the existing 352,088 sq ft.

Work is expected to start this quarter and finish by Q4 this year. The refurbishment is projected to achieve incremental annual net property income of $7 million, reflecting a 12.5 per cent return on an ungeared basis.

The trust said it has in-principle approval from the Urban Redevelopment Authority to decant about 65,000 sq ft of gross floor area from mechanical and equipment use to new retail use.

The renovation project includes construction of a three-storey island podium in the Level 1 atrium, expansion of The Marketplace in Basement 1 and the reconfiguration and extension of the lease lines of some shops on levels 1 and 2. Levels 1 and 2 of the island podium will be designated for retail use and the third level will be a new elevated atrium for hosting events and promotions. ‘A new three-storey-high water feature integrated into the design of the island podium will serve as an iconic focal point of Raffles City,’ CCTML said.

The retail net lettable area of The Marketplace in Basement 1 will be enlarged by 26,412 sq ft or 30 per cent to 115,980 sq ft. Part of the Basement 1 car park will be converted to retail space to facilitate this. As well, a new car ramp will be built, linking Basements 1 and 3 to enhance vehicle traffic flow.

Besides a 60 per cent stake in the Raffles City office, retail and hotel complex, CCT owns office buildings here including Capital Tower, 6 Battery Road and HSBC Building, a 30 per cent stake in Malaysia-listed Quill Capita Trust and a 7.4 per cent interest in a private property trust, Malaysia Commercial Development Fund.

CCT also effectively owns Wisma Technip office tower in Kuala Lumpur through full control of junior bonds issued in connection with the building’s asset securitisation.

CCT’s Q1 distributable income of $29.2 million works out to a distribution per unit of 2.11 cents, up 22.7 per cent from 1.72 cents for Q1 last year and a 9.9 per cent outperformance on CCTML’s forecast DPU of 1.92 cents based on information in its August 15, 2006 circular.

The latest 2.11 cent DPU for Q1 2007 works out to an annualised payout of 8.56 cents, which reflects a distribution yield of 3.16 per cent based on CCT’s closing price yesterday of $2.71.

CCT’s Q1 2007 gross revenue of almost $56.7 million was a 4.8 per cent improvement on its forecast. This was due mainly to increased rental income, car park income and other income, but was partially offset by lower rental income from Capital Tower due to reconfiguration works.

The trust also booked a $4.5 million loss from the re-measurement of fair values of interest rate swaps in Q1, against a $2.9 million profit in the year-ago period. For full-year 2007, CCTML said it expects to surpass the 7.60 cent DPU reflected in its August 2006 circular.

Source: The Business Times, 26 April 2007