CapitaLand Commercial Trust - RHB Invest 2015-10-29: A Pessimistic Outlook For CapitaGreen

CapitaLand Commercial Trust - RHB Invest 2015-10-29: A Pessimistic Outlook For CapitaGreen CAPITALAND COMMERCIAL TRUST C61U.SI 

CapitaLand Commercial Trust - A Pessimistic Outlook For CapitaGreen

  • CapitaLand Commercial Trust (CCT) reported 3Q15 and 9M15 DPU growth of 2.4% and 2.2% YoY respectively, with the latter meeting c.73% of our full-year forecast. 
  • Maintain SELL, with an unchanged DDM-derived TP of SGD1.15 (20% downside). 
  • Despite registering positive rental reversion for the last quarter, we observed a dip in its average occupancy to 96.4%, coupled with declining committed rentals in its new Grade A office building, CapitaGreen. 

 In line with our expectations. 

  • CapitaLand Commercial Trust (CCT) recorded a 2.4/2.2% YoY increase in 3Q15/9M15 distribution per unit (DPU), with the latter accounting for c.73% of our full-year estimate. 
  • 3Q15/9M15 distributable incomes grew 2.5%/2.6% YoY, underpinned by higher income from Raffles City Singapore (in which it holds a 60% stake). Its portfolio average occupancy rate dipped to 96.4%, mainly due to the drop in occupancy in Capital Tower. 
  • In addition, the REIT reported positive rental reversion, with average passing rental rates for the overall portfolio inching up a mere 0.1% QoQ to SGD8.89 psf/month. 

 Committed rentals in CapitaGreen decline as take-ups slow down. 

  • In the last quarter, we note that leasing activity has slowed down, as committed occupancy for the Grade A building inched up to 85.5% (2Q15: 80.4%). In addition, we observed that committed rental rates have been declining, as the REIT registered SGD11.90psf/month to SGD14.00 psf/month for its new leases in 3Q15. These are in line with our expectations, as we have highlighted our bearish view on the office rental market. 
  • We believe that CapitaGreen is more likely to record a further decline in its committed rentals as we note that the asking price for its space has declined from 1 Sep to present day. 

 Maintain SELL with an unchanged TP of SGD1.15. 

  • Given the lacklustre office rental outlook, we believe it is unlikely for the REIT to achieve full occupancy in CapitaGreen by the end of 2015. In addition, according to the latest 3Q15 report from CBRE, office rents have corrected 3.5% QoQ to SGD10.90psf/month. 
  • We believe that rental rates are more likely to fall further amid a large supply of office space next year. 
  • We maintain SELL, with an unchanged TP of SGD1.15.

Ivan Looi RHB Research | Ong Kian Lin RHB Research | 2015-10-29
RHB Research SGX Stock Analyst Report SELL Maintain SELL 1.15 Same 1.15