CapitaLand Commercial Trust - Maybank Kim Eng 2015-10-28: No catalysts, but best-positioned

CapitaLand Commercial Trust - Maybank Kim Eng 2015-10-28: No catalysts, but best-positioned CAPITALAND COMMERCIAL TRUST C61U.SI 

CapitaLand Commercial Trust - No catalysts, but best-positioned 

  • 3Q15 DPU of 2.14 SGD cts in line. 9M15 at 75% of FY15F. 
  • Higher occupancy at CapitaGreen eclipsed by weakness at Capital Tower & Twenty Anson. Overall occupancy fell. 
  • Maintain HOLD & SGD1.25 TP, based on 7% yield target. In our coverage, we believe CCT is better-positioned to weather office headwinds. 

Slight fall in occupancy 

  • 3Q15 DPU of 2.14 SGD cts (+2.4% YoY, -2.3% QoQ) is in line with expectations, with 9M15 at 75.3% of our FY15F. 
  • Committed leases at 40%-owned CapitaGreen increased to 87.7% as of 27 Oct 2015 (2Q15: 80.4%). 
  • Rents committed at the new building were stable at SGD11.90-14.00 psf pm (2Q15: SGD12.05-16.00). 
  • Despite higher occupancy at CapitaGreen, overall occupancy was pulled down to 96.4% (2Q15: 98.0%) by tenant exits at Capital Tower (92.2%) and Twenty Anson (97.9%). These were previously full. 
  • Debt metrics changed minimally, with aggregate leverage down to 30.1% from 30.2% in 3Q14 and all-in financing cost at 2.4%, from 2.3%. 

Maintain HOLD 

  • Although CCT lacks catalysts, we believe it is best positioned among its peers to weather an oncoming office supply glut. 
  • Its exposure to this oversupply is low as only 14% of its office space will be up for renewal in 2016. This compares favourably with 16% for KREIT and 21% for Suntec REIT. 
  • Furthermore, with its low leverage of 30.1% (KREIT: 42.6%, Suntec REIT: 36.7%), it has more room to explore acquisitions which could limit DPU downside even if market rents decline significantly. 
  • We forecast organic DPU growth of 2+% pa into FY17, from incremental contributions from CapitaGreen. After factoring in forward DPU yields of 6%, we expect total downside to be less than 10%. 
  • Maintain HOLD and SGD1.25 TP, based on a 7.0% yield target for FY16E.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-10-28
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOL 1.25 Same 1.25