CapitaLand Commercial Trust - OCBC Investment 2017-10-23: Recovery In Core CBD Market Rents

CapitaLand Commercial Trust - OCBC Investment 2017-10-23: Recovery In Core CBD Market Rents CAPITALAND COMMERCIAL TRUST C61U.SI

CapitaLand Commercial Trust - Recovery In Core CBD Market Rents

  • 3Q17 DPU +2.6% YoY.
  • Uptick in committed occupancy.
  • AST2 acquisition expected completion in Nov.

3Q17 results within our expectations 

  • CapitaLand Commercial Trust (CCT) reported an in-line set of 3Q17 results. 
  • Gross revenue declined 0.4% YoY to S$74.1m, but NPI increased 2.7% to S$58.6m due largely to lower property taxes. 
  • DPU rose 2.6% YoY to 2.36 S cents, and this includes S$3.3m of top-up from gains arising from the divestments of One George Street (50% interest) and Wilkie Edge. However, as an additional 513.5m new units are expected to be issued in Oct following CCT’s rights issue exercise and these units would be entitled to CCT’s 2H17 distributions, adjusted 3Q17 DPU would be 2.02 S cents. This represents a decline of 12.2% YoY, but up 6.9% if we assume a similar unit base for 3Q16. 
  • For 9M17, CCT’s gross revenue jumped 20.3% to S$251.2m and made up 76.6% of our full-year forecast. DPU of 6.92 S cents represented growth of 3.4%, but adjusted 9M17 DPU would be 6.58 S cents, which we estimate to be lower YoY by 1.6%. This formed 77.6% of our FY17 forecast.

Improved occupancy but rental reversions still subdued 

  • CCT’s committed portfolio occupancy rose 0.9 ppt QoQ to 98.5% due mainly to improvements at Six Battery Road and Twenty Anson. Although its average office portfolio rent increased 0.5% QoQ to S$9.23 psf/month, this was largely due to a higher proportion of Grade A assets in its portfolio. 
  • We believe rental reversions remained largely negative, as committed rents at Six Battery Road and One George Street were S$9.77-S$12.50 and S$8.63-S$9.25, versus average expired rents of S$11.88 and S$10.65, respectively. 
  • A silver lining is the inflection point reached for core Grade A CBD office rents, which rebounded 1.7% QoQ to S$9.10 psf/month in 3Q17, according to CBRE. This was the first sequential increase in 10 quarters. This augurs well for CCT’s proposed acquisition of Asia Square Tower 2 (AST2), which is expected to be completed in Nov this year.

Maintain HOLD 

  • We tweak our FY17 DPU forecast upwards by 1.6% as we lower our finance costs projection to adjust for the timeline assumed for the debt drawdown for the acquisition of AST2. 
  • Our DDM-derived fair value estimate inches up from S$1.65 to S$1.66. 
  • Maintain HOLD.

Wong Teck Ching Andy OCBC Investment | 2017-10-23
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.660 Up 1.650