CapitaLand Commercial Trust - CIMB Research 2016-04-15: Rising CapitaGreen contributions

CapitaLand Commercial Trust - CIMB Research 2016-04-15: Rising CapitaGreen contributions CAPITALAND COMMERCIAL TRUST C61U.SI 

CapitaLand Commercial Trust - Rising CapitaGreen contributions 

  • 1QFY16 results in line, DPU of 2.19 Scts at 25% of our full-year forecast. 
  • Portfolio rents ticked up marginally qoq, new demand from diversified sources. 
  • Narrowing gap between passing and market rents suggests renewals would be fairly neutral, with possibility of negative reversions in 2017. 
  • Low gearing of 30.1%; option to purchase the remaining 60% of CapitaGreen
  • Maintain Hold, with target price unchanged at S$1.48. 

■ Lifted by CapitaGreen contributions 

  • CCT achieved 1QFY16 DPU of 2.19 Scts, up 3.3% yoy, accounting for 25% of our fullyear estimate. 
  • Although gross revenue dipped 2% yoy to S$66.9m, distribution income rose 3.3% to S$64.8m, aided by higher JV contributions, largely from its 40% stake in CapitaGreen. The property is 92.8% committed as at end Mar 16. 

■ Diversified new demand sources kept occupancy high 

  • Average portfolio rents ticked up 0.7% qoq to S$8.96psf, with occupancy climbing 1% pt qoq to 98.1%. 
  • In 1Q, CCT signed new and renewal leases for 162ksf of space with positive reversions ranging from low single digit to low teens. 
  • 54% of the leasing activity are from new demand from tenants in the maritime and logistics, real estate, legal, financial services, manufacturing and distribution sectors. 

■ Focus on tenant retention 

  • CCT has 12% and 13% of gross rental income to be re-contracted in the remainder of 2016 and in 2017, respectively. Average expiring office rent is S$9.42psf in 2016, S$10.17psf in 2017 and S$10.62psf in 2018. 
  • CBRE’s average current market rent is S$9.90psf. Hence, we expect lease renewals to remain fairly netural as market rents continue to trend south with the incoming supply. 
  • We think the impact of negative rental reversions could likely show from FY17 onwards, with higher expiring rents. 

■ Strong balance sheet raises inorganic growth potential 

  • CCT’s gearing stands at a low 30.1% as at Mar 16, with average interest cost of 2.5%. Some 91% of its interest cost is hedged. 
  • The low leverage ratio puts the trust in a good position to expand inorganically. It has the option to buy the remaining 60% share of CapitaGreen when income from this asset stabilises. 
  • Based on a 40% gearing, CCT has potential debt headroom of cS$1.1bn-1.2bn. 

■ Maintain Hold 

  • We leave our FY16-18 DPU estimates unchanged and maintain our Hold rating for the stock. CCT offers investors FY16F DPU yield of 6.1%, with limited upside to our DDM-backed target price of S$1.48.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | 2016-04-15
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.48 Same 1.48