Shares of CapitaCommercial Trust (CCT) rallied to a two-month high on Wednesday following an announcement that it would refinance as much as S$580 million of mortgage-backed securities. The counter was up 7 per cent to S$1.00.
Analysts are also cheering the company’s decision to scrap a billion-dollar redevelopment plan in Singapore’s business district as more developers are expected to hold back development plans in the months ahead, due to weak rentals.
Construction costs may be moderating but not at a satisfactory rate, according to market-watchers. There is also a weak property market and an increasingly tight credit environment.
All these make it difficult for REITs to justify pursuing aggressive growth strategies.
Brandon Lee, investment analyst, DMG & Partners, said: “Capital preservation right now really ranks on top of most REITs radar. If the REITs have any additional cash position or capital, they would actually try to reserve it for any near-term refinancing issues instead.”
Therefore, analysts said it is no surprise that CCT chose to scrap plans to transform the Market Street car park in Singapore’s business district into a Grade-A commercial building, which would have cost S$1.5 billion.
The Market Street car park project was first announced in January last year. However, in April, CCT decided to delay the project and to make a decision after mid-2009. Since then, it has decided to work on improving tenant mix and extending longer term leases.
Analysts said this piece of news brings relief not only to the tight car park situation in the central business district, but also to tenants who have shops in the building.
Donald Han, managing director, Cushman & Wakefield, said: “In the past, one of the issues for the Market Street car park was the uncertainty in time frame. There are tenants operating who are unsure of whether their leases can be renewed.
“Some of them have packed in fairly high renovation costs. To be given notice to quit or to amortize all the expensive fit over a shorter period is an expensive affair for tenants.
“So now the deferment or non-development position by the owners would create certainty, not only for existing tenants but also new tenants who are looking into potentially taking a position in the Market Street retail component.”
Other REITs apart from CCT have also found it sensible to hold back development or acquisition projects for now. Among them are CapitaMall Trust, Suntec REIT and Saizen REIT.
Mr Lee said: “Since the third quarter last year, I think there are a handful of REITs which have put on hold their plans, such as CapitaMall Trust. They have actually deferred the asset enhancement plans for three assets, as well as Suntec REIT which put on hold its further acquisition of more strata title spaces in Suntec City.”
This conservative stance is one that even large developers are taking.
Mr Han said: “Owners of Marina House for instance have backed out from wanting to develop. UIC announced last year they’re not going to redevelop UIC building into a residential building and they are continuing longer term leases for office tenants.
“Of late, you’ve got the South Beach project delayed by virtue of high construction costs and there’s also the Funan Digital Mall (project) which has been deferred.”
Analysts said the situation will only improve by end-2010 or 2011 – a year or so after the economy picks up when the credit situation improves.
Source : Channel NewsAsia – 7 Jan 2009