CapitaLand Commercial Trust (CCT SP) - Maybank Kim Eng 2016-10-19: Golden Shoe’s Value Creation

CapitaLand Commercial Trust (CCT SP) - Maybank Kim Eng 2016-10-19: Golden Shoe’s Value Creation CAPITALAND COMMERCIAL TRUST C61U.SI

CapitaLand Commercial Trust (CCT SP) - Golden Shoe’s Value Creation


In line; maintain BUY & SGD1.81 TP 

  • 3Q16 results met, with 9M16 DPU at 76% of our FY16E. 
  • CCT has submitted plans to redevelop Golden Shoe into a commercial building. We view this positively as it should allow CCT to capture a potential recovery in the office market when the building is completed in 2021. 
  • Maintain BUY and SGD1.81 TP, at a target yield of 5.0%. CCT is our top sector pick as we find its forward yields of 5.7% attractive considering its strong WALE of 6.8 years and DPU growth from its acquisition of CapitaGreen.
  • Furthermore, unlike distributions for its office peers that are supported by non-core capital distributions, CCT’s reflects the underlying fundamentals of its properties.


Higher income from CapitaGreen 

  • 3Q16 DPU of 2.30 cts was in line, up 7.5% YoY and 4.5% QoQ as there were higher contributions from CapitaGreen. This became a 100% subsidiary from Sep 2016. Portfolio occupancy improved 0.2ppt to 97.4%.
  • Notably, One George Street is now 96.6% occupied, up from 2Q16’s 91.3%. While rental reversions could turn negative in the year ahead, we believe contributions from CapitaGreen will support distribution.


Value creation from Golden Shoe’s redevelopment 

  • Management is finally redeveloping its Golden Shoe Car Park into a commercial building with 1m sf GFA. We view this positively as it should allow CCT to capture a potential recovery in the office market when completed in 2021. If all approvals are granted, redevelopment will commence in 2H17. 
  • However, we caution that project feasibility is still limited by the amount of differential premium (DP) payable to change the property’s use from transport to commercial. This will form the bulk of its development cost. 
  • Recall that SGD651m of the SGD1.3b cost to redevelop its former Market Street Carpark to CapitaGreen relates to DP and other land-related costs.


May need to raise funds 

  • With its aggregate leverage already at 37.8%, we believe CCT may need to raise funds for this project. Debt headroom to a comfortable gearing level of 40% is just SGD0.3b. It may not be prudent to push too close to its regulatory limit of 45%.


Swing Factors


Upside

  • Appreciation in capital value of its properties.
  • Redevelopment of assets such as Golden Shoe Carpark.
  • Earlier-than-expected rebound in office rents.

Downside

  • Sharper-than-expected declines in office rents or occupancy.
  • Overpaying for acquisitions.
  • Cost overruns in any redevelopment projects.




Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-10-19
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.81 Same 1.810



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