CapitaLand Commercial Trust - Maybank Kim Eng 2015-09-08: Preferred Office REIT.

CAPITALAND COMMERCIAL TRUST C61U.SI 

Preferred Office REIT 

  • Cut FY15-17 DPU by 7.5% for lower market-rent assumptions & higher vacancies. 
  • Believe CCT deserves a valuation premium to peers. Best positioned to ride out market weakness. Lowest leverage & most-favourable lease-expiry profile. 
  • Still, maintain HOLD given lack of immediate catalysts. Lower TP to SGD1.25 from SGD1.77, now based on FY16 yield target of 7.0%, from DDM. CCT is our preferred REIT for office exposure. 



What’s New 

  • We cut 2015-17 market-rent assumptions from +6%/-6%/+2% to - 1%/-10%/-3%. Given an impending market surplus, we also build in 3% vacancy rates for all its offices in FY16. Still, we expect DPU to be supported by incremental contributions from newly-completed CapitaGreen. DPU should grow 2.5% pa even after we cut DPU by 7.5%. 

What’s Our View 

  • We think CCT deserves a valuation premium to peers as it is best positioned to ride out current market weakness. It has the most favourable lease-expiry profile with only 15% of its NLA due for renewal in 2016. 
  • Low financial leverage also implies lesser exposure to interest-rate hikes. Furthermore, it has the option to acquire the remaining 60% of CapitaGreen without the need to raise funds. 
  • We lower TP to SGD1.25 from SGD1.77 after a change in valuation methodology across our REITs from DDM to yield targets. 
  • Our target for CCT is 7.0% vs 7.25% for the others. 
  • Given lacklustre market conditions, maintain HOLD.


Derrick Heng CFA | http://www.maybank-ke.com.sg/ Maybank KE 2015-09-08
HOLD Maintain HOLD 1.25 Down 1.77


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