CapitaLand Commercial Trust - CIMB Research 2017-01-18: 4Q lifted by CapitaGreen

CAPITALAND COMMERCIAL TRUST C61U.SI

CapitaLand Commercial Trust - 4Q lifted by CapitaGreen

4Q16 DPU was slightly above our estimate and FY16 DPU beat our forecast by 2%.
The results were boosted by the strong showing from CapitaGreen and improved performance from Raffles City.
We expect FY17-18 outlook to remain fairly steady with fewer lease expiries and potential stabilisation of office rents with new supply tapering off.
Details on Golden Shoe Carpark (GSCP) redevelopment are still pending.

CCT reported a c.33% jump in 4Q16 revenue to S$89.7m thanks to the inclusion of revenue from CapitaGreen (CG).
Distribution income of S$70.8m, +10% yoy, translates into a DPU of 2.39 Scts.
For FY16, DPU of 9.08 Scts is up 5.3% yoy and came in just 2% above our forecast.
On a like-for-like basis, CCT saw 0.2% revaluation uplift, with cap rates unchanged, resulting in a book NAV of S$1.78.

The improvement in topline and NPI came largely from the additional stake in CG, acquired in 2H16. An estimated 85% of the yoy improvement in DPU came from this property with the remaining largely from its stake in Raffles City.
Although retention rate fell to 62% from 83% a year ago, portfolio occupancy remained high at 97.1%. The group continued to lease c.143,000sf of leases in 4Q of which half were new leases (FY16: 733,000sf).

CCT’s average portfolio rents dipped 0.2% yoy as the oversupply environment and intense leasing competition continued to drag on rates. CCT has a remaining small 5% of portfolio income to be renewed in FY17 (mainly in 2H17) and a further 13% in FY18.
The supply situation is expected to improve with significant reduction in new completions in 2018-19. We believe that this is likely to support rental outlook going into 2H17.

Beyond organic performance, CCT is planning to redevelop Golden Shoe Carpark (GSCP) into a 1msf office tower with a new food centre. This is still pending details and approval for the various authorities.
CCT intends to fund this exercise via an asset sale or bringing in JV partners, given its current gearing of 37.8%. The exercise is slated to start in 2H17 and be completed in 2021.
We think income vacuum during the development period could be mitigated by releasing part of its S$20.4m retained income.

We cut FY17-18 DPU estimates by 0.8-3.7% to factor in the dilution from conversion of S$175m of convertible bonds (CBs) (due Sep 17, est. +4% in issued units) which leads to a slight yoy dip in FY18 DPU. But CCT has S$20.4m retained income as at 4Q16 which could be used to top up any income volatility.
After making these adjustments and rolling our DDM-based target price forward, our TP is lowered to S$1.50.
Risk to call is slower than expected GDP growth that may dampen demand for office space.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-01-18

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