CapitaLand Commercial Trust - CIMB Research 2016-01-20: Higher occupancy underpins earnings

CapitaLand Commercial Trust - CIMB Research 2016-01-20: Higher occupancy underpins earnings CAPITALAND COMMERCIAL TRUST C61U.SI 

CapitaLand Commercial Trust - Higher occupancy underpins earnings 

  • FY15 DPU in line, at 97% of our forecast. 
  • Continued to enjoy positive rental reversions with high tenant retention rate in FY15. 
  • FY16 focus to be on maintaining occupancy amid large incoming supply in the market this year and next. 
  • Low gearing; potential for inorganic drivers. 
  • Maintain Add with a revised target price of S$1.48. 

■ In line, FY15 DPU at 97% of our forecast 

  • CCT reported DPU of 2.17 Scts for 4Q15 (+0.9% yoy) and 8.62 Scts for FY15 (+1.9%), largely within expectations. The improvement was underpinned by higher revenue as it continued to benefit from increased portfolio occupancy of 97.1% and positive rental reversions, particularly at Capital Tower and 6 Battery Rd. 
  • It also completed an S$35m AEI at Capital Tower and achieved ROI of 8.2%. In 2H15, the trust enjoyed a revaluation surplus of S$50.6m, with cap rates unchanged; this increased its BV to S$1.77/unit. 

■ Positive rental reversions amid high retention rate 

  • CCT renewed 205,000sf of leases in 4Q15, with demand coming from the TMT, financial services and energy, maritime and logistics sectors. This was achieved on the back of 3.4% yoy higher reversion levels. 
  • Tenant retention remained relatively stable at 83%. 

■ Focus on tenant retention 

  • Underpinning FY16 earnings are positive contributions from 40%-owned CapitaGreen (take up of 91.3%). 
  • CCT has 7% and 10% of its gross rental income to be re-contracted in FY16 and F17, respectively. With expiring rents in FY16 averaging S$9.57psf/mth and have c.10% spread over current spot rents, we expect lease renewals to remain fairly neutral as market rents slide this year with the incoming new supply. 
  • FY17 remains challenging as average expiring rents will be at a higher S$10.26psf/mth, in our view. 

■ Exploring inorganic growth drivers 

  • With a low gearing of 29.5%, CCT is well placed to explore acquisition growth, although with a portfolio net property yield of 4.6%, it may be somewhat challenging to get DPU accretive purchases. 
  • It has an option to buy the remaining 60% stake in CapitaGreen. 
  • CCT has significant debt headroom of S$1.3bn (assuming a 40% leverage ratio). 
  • Recent media reports indicate that the trust could sell its One George St property. If this materialises, it would provide CCT more headroom to explore more opportunities. 

■ Maintain Add 

  • We maintain our Add call, with a lower DDM-based target price of S$1.48, as we finetune our rent assumptions and raise our cost of equity slightly to 8.1%. 
  • CCT offers investors FY16 DPU yield of 6.3%.

LOCK Mun Yee CIMB Securities | 2016-01-20
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.48 Down 1.65