CapitaLand Commercial Trust - Maybank Kim Eng 2016-01-20: Best-Positioned in Tough Office

CapitaLand Commercial Trust - Maybank Kim Eng 2016-01-20: Best-Positioned in Tough Office CAPITALAND COMMERCIAL TRUST C61U.SI 

CapitaLand Commercial Trust (CCT SP) - Best-Positioned in Tough Office Market 

Maintain HOLD; 4Q15 no surprise 

  • Reiterate HOLD on CCT and SGD1.25 TP, based on a 7.0% FY16 yield target. 4Q15 results offered little surprise. 
  • While the REIT is bestpositioned among its office peers, we see no reason to raise exposure, given a difficult office market. 
  • Higher occupancy 4Q15 DPU of 2.17 SGD cts (+0.9% YoY, +1.4% QoQ) met expectations, with FY15 at 101% of our forecast. 
  • Despite difficult market conditions, occupancy improved to 97.1% (3Q15: 96.4%). 
  • CapitaGreen is now 91.7% committed (3Q15: 85.5%); its NPI included SGD4.4m of non-recurring income from rent amortization in 4Q15. 
  • Exposure to interest-rate hikes is low, at 84% of fixed-rate debt and 29.5% leverage, the lowest among peers. 
  • Excluding forward renewals, its exposure to peak supply years in 2016/17 should be manageable, at 10%/14% of office income. 

Manageable exposure 

  • Asset valuation improved by 1.6% YoY to SGD7.5b. 
  • Assumptions used were largely unchanged from mid-2015, except for lower rent-growth assumptions of 3.8%, from 3.9%. The REIT has manageable exposure to the banking, insurance and financial sector at 33% of total income. Also, its tenants have no pre-termination clauses, although management is open to negotiating terms if conditions worsen. 

Not a passive REIT manager 

  • Management is constantly evaluating ways of creating shareholder value. 
  • Firstly, it will monitor the performance of CapitaGreen and will only acquire the balance 60% when it is yield-accretive. 
  • Secondly, it will evaluate options for its assets and may sell at the right price. 
  • Lastly, the redevelopment of Golden Shoe Carpark remains possible, despite hurdles. 
  • Management does not intend to venture overseas without a proper platform as it does not believe in being passive investors.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-20
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.25 Same 1.25