Published January 8, 2009

CCT $580m refinancing boosts shares of S-Reits

By EMILYN YAP

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MOST Singapore-listed real estate investment trusts (S-Reits) chalked up gains yesterday as news of CapitaCommercial Trust's (CCT) $580 million loan allayed refinancing concerns facing the sector.

Fourteen out of 21 Reits closed higher. The FTSE ST Reit Index rose as much as 6.4 per cent in the day before ending at 407.09 for an 8.96-point or 2.3 per cent gain.

Among the Reits, CCT led the rally in percentage terms with a 7 per cent or 6.5-cent increase to close at $1.00.

Fortune Reit followed close behind, jumping 6.4 per cent or 14 HK cents to HK$2.34 (S$0.45).

CCT announced on Tuesday that it had obtained a three-year term loan of up to $580 million to refinance borrowings due in March.

The trust also said that it would drop the redevelopment of Market Street Car Park into a Grade A office and commercial building.

'Including this club loan, CCT's latest all-in cost of debt is estimated to fall well within 4.4 per cent, which is 80 basis points higher than its current 3.6 per cent,' said DMG & Partners analyst Brandon Lee in a note yesterday.

Nevertheless, 'the apparent availability of credit would serve to reinvigorate investors' sagging belief in the credit-dependent Reit model'.

Supporting this view, another Reit analyst told BT: 'Credit is available, especially to the better-sponsored Reits, but cost of funding is likely to go up.'

In a December report last year, DBS Vickers had estimated that the all-in cost of debt for Singapore Reits could rise from an average of 3.2 per cent to over 4 per cent.

CCT's plan to abort the redevelopment of Market Street Car Park - estimated to cost $1 billion to $1.5 billion - also won Nomura Singapore's support.

But the outlook for CCT is not entirely rosy yet. 'We take a positive view of the refinancing... (but) this announcement is likely to be the last significant price catalyst for CCT this year as we expect more negative news flow on falling office rents and declining office space demand,' said CIMB analyst Janice Ding.

Concerns over possible asset writedowns and the impact on gearing also continue to loom over the Reit sector.

As the property market falls, 'a reduction of capital values would lead to a writedown in book values of S-Reits... This would translate to a higher gearing level for S-Reits,' said DBS Vickers in its report.