CapitaLand Commercial Trust - RHB Invest 2016-01-21: Further Headwinds Ahead

CapitaLand Commercial Trust - RHB Invest 2016-01-21: Further Headwinds Ahead CAPITALAND COMMERCIAL TRUST C61U.SI 

CapitaLand Commercial Trust (CCT SP) - Further Headwinds Ahead 

  • CCT’s 4Q15 results were within our expectations. 
  • Maintain SELL with an unchanged DDM-derived SGD1.15 TP (16% downside), which implies 0.66x FY15F P/BV. 
  • Its overall portfolio stood at c.97%, while average passing rental inch up slightly by 0.1% QoQ. 
  • Factoring in a 15% decline in office rents, we expect rental reversions to be negative for some of its assets, such as Six Battery Road. 

 Results in line while maintaining a healthy gearing level. 

  • CapitaLand Commercial Trust’s (CCT) 4Q15/FY15 results were in line with our expectations, with DPU up 0.9/1.9% YoY respectively. This met ~97% of our full-year estimate. 
  • The results were underpinned by a 1.9% YoY higher revenue, mainly driven by higher rental and occupancy rates. CCT’s gearing ratio remained stable at 29.5%, implying debt headroom of SGD650m, assuming a gearing level of 35%. 

 Declining committed rentals in CapitaGreen. 

  • CCT’s portfolio occupancy inched up to c.97%, while the REIT manager observed shrinking demand from the financial sector. 
  • Additionally, leasing proved to be difficult for its CapitaGreen asset as its occupancy inched up marginally to 91%, with lower committed rental rates inked by new tenants. 
  • Lastly, valuers’ cap rates across CCT’s portfolio remained largely unchanged, as the REIT registered 1.6% YoY higher portfolio valuation. 

 Talks on divesting One George Street (OGS) unconfirmed. 

  • While management did not confirm on the potential divestment of OGS, it did say that portfolio reconstitution has always been part of CCT’s core strategy. 
  • In addition, management said that it was unnecessary to divest OGS to fund the REIT’s potential acquisition of the 60% remaining stake in CapitaGreen, given its ample debt headroom. 

 Maintain SELL with an unchanged DDM-derived SGD1.15 TP. 

  • We expect some pressure on renewal rental rates from Six Battery Road, as the rates of its expiring leases are higher than the current market average. 
  • In addition, in view of a pessimistic outlook in the office leasing climate, we maintain our SELL recommendation and SGD1.15 TP.

Ivan Looi RHB Invest | 2016-01-21
RHB Invest SGX Stock Analyst Report SELL Maintain SELL 1.15 Same 1.15