RHB Research 2015-07-27: CapitaLand Commercial Trust - Pressure On CapitaGreen. Maintain NEUTRAL.

Pressure On CapitaGreen

  • CCT’s 2Q/1H15 DPU grew 0.5%/2.1% YoY, mainly driven by higher portfolio occupancy levels and rental reversion. 
  • Maintain NEUTRAL with a lower SGD1.52 TP (3% upside)
  • All eyes were on CapitaGreen as it inked rental rates of SGD12.05-16.00 psf/month and achieved 80.4% occupancy. 
  • Given the challenging office leasing market today, we are wary of CapitaGreen’s ability to continue to lease out its space at higher-than-market rental rates. 

 Results in line with our expectations. 

  • CapitaLand Commercial Trust (CCT) saw a 0.5%/2.1% YoY increase in 2Q/1H15 DPU to 2.19/4.31 cents, accounting for 48.7% of our full-year estimates, without contributions from CapitaGreen. 
  • 1H15 revenue was up 5.7% YoY, mainly attributable to higher occupancy and higher rental reversion booked in. 
  • Its portfolio average occupancy remained stable at 98.0%, while average passing rent for the overall portfolio inched up 1.1% QoQ to SGD8.88 psf/month. 

 Status update on CapitaGreen. 

  • CapitaGreen inked rental rates of SGD12.05-16.00 psf/month for the quarter and has achieved 80.4% committed occupancy (1Q15: 69.9%). 
  • Management has also pointed out that 50% of tenants have shifted to CapitaGreen as they expand their businesses. 
  • Given that the remaining 19.6% space is mostly situated within the premium levels, CapitaGreen may face pressure on its leasing activity. 

 No other near-term catalyst. 

  • As most assets have already undergone refurbishment in recent years (ongoing asset enhancement initiative (AEI): Capital Tower), there should not be any more coming through in the near term. 
  • Likewise, the redevelopment of Golden Shoe Car Park would most likely take place in the longer term. 
  • The only near-term catalyst would be CapitaGreen’s contribution starting 2016, in which we see rental pressure in the current leasing environment. 

 Maintain NEUTRAL with a lower DDM-derived TP of SGD1.52. 

  • In view of CapitaGreen’s rental pressure coupled with the large office supply next year, we lower our TP to SGD1.52 (from SGD1.70). 
  • We maintain our NEUTRAL recommendation.

(Ong Kian Lin; Ivan Looi)

Source: http://www.rhbgroup.com/