CapitaLand Commercial Trust - CIMB Research 2016-10-19: Plans to redevelop Golden Shoe Carpark

CAPITALAND COMMERCIAL TRUST C61U.SI

CapitaLand Commercial Trust - Plans to redevelop Golden Shoe Carpark

Better yoy results with additional contributions from CapitaGreen. 3QFY16 DPU was in line with our expectations.
Maintain high portfolio occupancy at 97.4%, slight positive reversions on renewals.
Low number of expiries over the next two years and additional contributions from CapitaGreen to underpin DPU expansion.

CCT posted an 8% yoy higher distributable income of S$68.3m (US$49.5m) for 3QFY16, translating to a DPU of 2.3 Scts, making up 26% of our FY16 forecast. This was supported by higher gross revenue of S$74.4m (US$54m), +8.9% yoy, thanks to 2 months of additional income from CapitaGreen (CG) post acquisition of remaining 60% stake, and better JV contributions.
For 9MFY16, the group achieved DPU of 6.69 Scts.

Stripping out CG revenue from topline would translate to a fairly flat performance, with occupancy remaining at 97.4%. Reversion rents were slightly higher than previous levels.
During the quarter, CCT renewed 155k sqf of space, at rents in the S$8-13psf range compared to expiring rents of S$8.68-11.12psf.
Demand came from legal, energy/commodities, financial services and business consultancy sectors.

Looking ahead, CCT has 2% of gross rental income to be renewed in FY16, and another 9% to be re-contracted in FY17, and 17% in FY18. Expiring rents in FY17 average S$10.73psf while those in FY18 are at S$11.10psf. With current market rents still trending down, we think negative rental reversions would start kicking in. However, we think additional income from CG would likely offset any weakness from other properties.

CCT plans to redevelop Golden Shoe Carpark (GSCP) into a 1m sqf office tower with a new food centre, subject to obtaining approval for a change of land use, payment of differential premium and rezoning of Master Plan.
Redevelopment is planned to commence in 2H17 and complete by 2021. The existing land lease expires in Jan 2081 and the current zoning is transport use. GSCP made up less than 5% of CCT’s gross revenue in FY15.

Based on its current AUM of circa S$8.6bn, CCT can undertake redevelopment activities of up to S$2.1bn (with unitholders’ approval).
While the trust’s debt headroom may be limited with a current gearing of 37.8%, it can evaluate various investment and funding structures, including JV and sale of existing assets to fund this exercise.

We raise our FY16 estimates by 3.4% to account for the earlier-than-targeted completion date for the purchase of the additional 60% stake in CG, and maintain our DDM-based TP of S$1.69.
Our current estimates have not factored in any upside impact from redeveloping GSCP.
Key downside risk includes potential DPU dilution from S$175m of in-the-money CBs maturing in Sep 17, which could result in up to a 3.8% expansion in the issued units base and lower our FY17-18 DPU estimates by 1.2-3.8%.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-10-19

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