CapitaLand Commercial Trust - DBS Research 2015-10-28: Shoots of Growth At CapitaGreen

CapitaLand Commercial Trust - DBS Research 2015-10-28: Shoots of Growth At CapitaGreen CAPITALAND COMMERCIAL TRUST C61U.SI 

CapitaLand Commercial Trust - SHOOTS OF GROWTH AT CAPITAGREEN 

CapitaGreen boosts earnings visibility amid uncertain market.

  • Despite an uncertain office market outlook in 2016, CCT offers investors earnings certainty in the form of additional contribution from CapitaGreen. This should more than offset the risk of negative rental reversions and lower occupancies for the rest of the portfolio in the next few years. 
  • Upside will come from acquisitions given its low gearing of 30%. 

Defensive portfolio with > 70% of leases expiring in FY18 and beyond. 

  • CCT has maintained a defensive leasing posture amid stiff competition for larger tenants by locking in longer term leases for most of its top 10 tenants.With >70% of office leases expiring in FY18 and beyond, the Trust offers investors a measure of earnings stability and certainty amid record office completions over the next two years. 

3.7% DPU CAGR for FY15-17. 

  • Looking ahead, we expect CCT to deliver 2-year DPU CAGR of 3.7%, driven by new contribution from CapitaGreen, which was opened in Dec-2014, and has a committed occupancy rate of 87.7% as of 3Q15. 
  • In addition, the REIT has a call option to acquire the remaining 60% of the asset in FY15-17 at the higher of valuation or development cost compounded at 6.3% p.a. 


  • We have a DCF-backed TP of S$1.48. We believe that dividend yield of 6.2-6.5% is attractive given its large market cap and trading liquidity. 
  • We have a BUY call premised on cheap valuations (stock is trading at 0.8x P/Bk) and total return of > 10%. However, we note that in the near term, share price could be more newsflow driven. 

Key Risks to Our View: 

  • Risk of higher vacancies and negative rental reversions for FY16. 
  • In FY16-17, close to 30% of CCT’s office leases will be due for expiry, the majority of which stems from One George Street (7%) and Six Battery Road (10%), where expiring rents are close to or slightly higher than market rents. As the Manager has prioritized tenant retention, there is a possibility of negative rental reversions, which would impede earnings growth.

Rachael TAN DBS Vickers | Derek Tan DBS Vickers | Mervin Song DBS Vickers | http://www.dbsvickers.com/ 2015-10-28
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.48 Same 1.48