CapitaLand Commercial Trust - CIMB Research 2017-04-19: Boost from CapitaGreen

CapitaLand Commercial Trust - CIMB Research 2017-04-19: Boost from CapitaGreen CAPITALAND COMMERCIAL TRUST C61U.SI

CapitaLand Commercial Trust - Boost from CapitaGreen

  • 1Q17 DPU of 2.4 Scts, in line with expectation at 25.8% of our FY17 forecast.
  • Maintained high portfolio occupancy; minimised impact of negative reversions.
  • Redevelopment plans for GSCP pending; limited debt headroom with 38.1% gearing.
  • Maintain Hold with higher target price of S$1.55.

Boosted by additional contributions from CapitaGreen 

  • CapitaLand Commercial Trust (CCT) reported a 34% yoy jump in revenue and NPI to S$89.5m and S$69.9m, respectively, due to the consolidation of contributions from CapitaGreen (CG), which it now fully owns. 
  • Distribution income improved a smaller 10% yoy to S$71.3m (DPU 2.4 Scts) with an additional 60% share of income from CG, partly offset by higher consolidated interest expense.

High portfolio occupancy 

  • Portfolio occupancy remained high at 97.8%, with 113k sq ft of new/renewed leases in 1Q. However, average portfolio passing rent dipped 0.2% qoq to S$9.18 psf/month as the impact of negative rental reversions kicked in. 
  • There was relocation demand as well as appetite for space from new tenants in business consultancy, IT, media, telco, energy and commodities and logistics.

Staggered lease expiries 

  • CCT has a remaining 4% of office retail gross rental income to be renewed in 2017, largely in 2H. Of this, 1.3% pts are in advanced negotiations. Another 13% and 25% of office leases are due to expire in FY18 and FY19, respectively. 
  • We expect office rents to bottom out towards the later part of this year, with low new incoming inventory over the next few years. Hence, we think CCT is well placed to benefit from any uptick in rents.

URA approval obtained for redevelopment of GSCP 

  • CCT reported that it had obtained URA provisional planning permission for the redevelopment of Golden Shoe Carpark (GSCP). It is still awaiting the Singapore Land Authority’s assessment of the differential premium payable for the potential enhancement in land use. 
  • Our current earnings estimates assume GSCP is closed from 2H17 but do not include any potential accretion from this redevelopment exercise.

Limited debt headroom with gearing of 38.1% 

  • With current gearing of 38.1% (36.1% assuming conversion of all CBs) and optimal target of up to 40%, CCT’s debt headroom looks limited. 
  • We think CCT is likely to evaluate other funding options, including asset sales (such as Wilkie Edge EOI) or jointly redeveloping the property. 
  • Additionally, CCT has locked in 80% of its borrowings on fixed rates. Hence, it is relatively insulated from the impact of interest rate hikes in the near term.

Maintain Hold 

  • We trim our FY17-19 DPU estimates to factor in a 6-month dilution from CB conversion in 2H17 (previously 3 months) and loss of income from GSCP. However, our DDM-based target price is raised following our sector-wide cut in Singapore discount rate.
  • While CCT currently offers modest total return of c.2%, we think there could be upside when the GSCP redevelopment is finalised. Hence, we maintain our Hold call. 
  • Downside risks include a longer-than-expected finalisation of details on the GSCP redevelopment.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | 2017-04-19
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.55 Up 1.500