CapitaLand Commercial Trust - 4Q lifted by CapitaGreen
- 4Q16 DPU was slightly above our estimate and FY16 DPU beat our forecast by 2%.
- The results were boosted by the strong showing from CapitaGreen and improved performance from Raffles City.
- We expect FY17-18 outlook to remain fairly steady with fewer lease expiries and potential stabilisation of office rents with new supply tapering off.
- Details on Golden Shoe Carpark (GSCP) redevelopment are still pending.
- We maintain our Hold call with a slightly lower target price of S$1.50.
4Q16 results slightly above our estimate
- CCT reported a c.33% jump in 4Q16 revenue to S$89.7m thanks to the inclusion of revenue from CapitaGreen (CG).
- Distribution income of S$70.8m, +10% yoy, translates into a DPU of 2.39 Scts.
- For FY16, DPU of 9.08 Scts is up 5.3% yoy and came in just 2% above our forecast.
- On a like-for-like basis, CCT saw 0.2% revaluation uplift, with cap rates unchanged, resulting in a book NAV of S$1.78.
DPU largely boosted by CG
- The improvement in topline and NPI came largely from the additional stake in CG, acquired in 2H16. An estimated 85% of the yoy improvement in DPU came from this property with the remaining largely from its stake in Raffles City.
- Although retention rate fell to 62% from 83% a year ago, portfolio occupancy remained high at 97.1%. The group continued to lease c.143,000sf of leases in 4Q of which half were new leases (FY16: 733,000sf).
Dip in portfolio rents due to oversupply drag
- CCT’s average portfolio rents dipped 0.2% yoy as the oversupply environment and intense leasing competition continued to drag on rates. CCT has a remaining small 5% of portfolio income to be renewed in FY17 (mainly in 2H17) and a further 13% in FY18.
- The supply situation is expected to improve with significant reduction in new completions in 2018-19. We believe that this is likely to support rental outlook going into 2H17.
GSCP redevelopment plans still pending
- Beyond organic performance, CCT is planning to redevelop Golden Shoe Carpark (GSCP) into a 1msf office tower with a new food centre. This is still pending details and approval for the various authorities.
- CCT intends to fund this exercise via an asset sale or bringing in JV partners, given its current gearing of 37.8%. The exercise is slated to start in 2H17 and be completed in 2021.
- We think income vacuum during the development period could be mitigated by releasing part of its S$20.4m retained income.
Maintain Hold on a positive total return basis
- We cut FY17-18 DPU estimates by 0.8-3.7% to factor in the dilution from conversion of S$175m of convertible bonds (CBs) (due Sep 17, est. +4% in issued units) which leads to a slight yoy dip in FY18 DPU. But CCT has S$20.4m retained income as at 4Q16 which could be used to top up any income volatility.
- After making these adjustments and rolling our DDM-based target price forward, our TP is lowered to S$1.50.
- Risk to call is slower than expected GDP growth that may dampen demand for office space.