CapitaLand Commercial Trust - DBS Research 2016-05-24: Timely green boost

CapitaLand Commercial Trust - DBS Research 2016-05-24: Timely green boost CAPITALAND COMMERCIAL TRUST C61U.SI 

CapitaLand Commercial Trust - Timely green boost

  • Acquires remaining 60% interest in CapitaGreen for S$393m
  • Raise FY16-17F DPU by 1.7-3.9%
  • Improves overall quality of CCT’s portfolio and mitigates shift of tenants to Marina Bay area

Timely acquisition of CapitaGreen. 

  • Despite the expected decline in the office market over 2016-2017, we believe the timely acquisition of the remaining 60% of CapitaGreen not only helps to offset potential negative rental reversions and lower occupancies for the rest of CapitaLand Commercial Trust (CCT)’s portfolio but will allow CCT to deliver 2-year DPU CAGR of 4%, which is among the highest in the office sector (office average is 2%) and above the SREIT DPU CAGR of 1%.

Defensive portfolio with > 70% of office leases expiring in FY18 and beyond. 

  • CCT has maintained a defensive leasing strategy amid stiff competition for larger tenants by locking in longer term leases for most of its top 10 tenants. 
  • With >70% of office leases expiring in FY18 and beyond, CCT offers investors a good measure of earnings visibility and stability amid record office completions over the next two years. 
  • Earnings risk in the near term is also mitigated by the fact that the average rent of leases expiring in 2016 of S$9.42 is below the current spot rent of S$9.90.

Trading at large discount to book. 

  • While there are concerns on the potential downside risk to the value of CCT’s portfolio given the decline in the Singapore office market, we believe this has largely been priced in given that CCT trades at 0.7x P/Bk which is close to -1SD of 0.63x.


  • After incorporating the CapitaGreen acquisition, we raise our DCF-based TP to S$1.61 from S$1.53
  • With CCT offering 22.5% 12-month total return (16% capital upside and 6.5% yield), we maintain our BUY call.

Key Risks to Our View:

  • A key risk to our view is new office supply causing spot rents to fall below S$7 psf, which is likely to lead to lower than expected asking rents and rental income.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-05-24
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.61 Up 1.53