CapitaLand Commercial Trust - CIMB Research 2018-01-25: Boost From CapitaGreen And Asia Square Tower 2

CAPITALAND COMMERCIAL TRUST C61U.SI

CapitaLand Commercial Trust - Boost From CapitaGreen And AST2

CapitaLand Commercial Trust's 4Q/FY17 adjusted DPU of 2.08 Scts/8.66 Scts was slightly above our projections but in line with consensus.
More tenant retention in 4Q kept portfolio occupancy high.
Expect narrowing rental gap with office market recovery in FY18.
Maintain HOLD with a higher Target Price of S$1.93.

CapitaLand Commercial Trust’s 4Q17 gross revenue fell 3.8% y-o-y due to the loss of income from the sale of 50% of One George St, Golden Shoe Carpark (GSCP) and Wilkie Edge. This was partly mitigated by 2 months of contribution from Asia Square Tower 2 (AST2) and income from CapitaGreen.
Inclusive of S$9.1m of capital top-up and tax-exempt income, adjusted 4Q DPU of 2.08 Scts rose 6.1% y-o-y and made up c.26% of our FY17 projections.
For FY17, adjusted DPU of 8.66 Scts increased by 6% y-o-y and was 7% above our projections.

CapitaLand Commercial Trust renewed 666,000 sq ft of retail and office leases in FY17 (182,000 sq ft in Q4), with a 78% retention rate, keeping portfolio committed occupancy at a high 97.3%.
An estimated 38% of the leases were new signings coming from financial services, commodities, maritime and logistics. There were still negative reversions even as the range of committed rents trended higher q-o-q.

CapitaLand Commercial Trust’s 9% of office and retail rents will expire in FY18 and another 30% in FY19. Management guided that there could still be some negative renewals as the expiring rents in FY18 at some properties are still higher than current market rents.
Nonetheless, we believe as office spot rents trend up on the back of demand recovery and limited supply, the reversion gap should narrow.

Nevertheless, we project FY18 DPU to rise 2.1% y-o-y to 8.85 Scts on the back of a full-year contribution from Asia Square Tower 2 (vs. 2 months in FY17). Current committed occupancy at AST2 is at 90.5% compared to the take-up of 88.7% at the point of acquisition.
CapitaLand Commercial Trust’s gearing rose to 37.3% at end-FY17 with additional debt funding taken for Asia Square Tower 2 purchase while cost of debt averaged 2.6%. It had recently obtained S$600m unsecured bank loans to refinance part of the S$1.12bn loans due in 2019.

We have raised our FY18-19F DPU post results. CapitaLand Commercial Trust is currently trading at FY18F DPU yield of 4.6%.
While we like the trust for its pure exposure to the office cycle recovery and ability to rejuvenate its portfolio through AEIs and redevelopment activities, near-term upside remains limited.
Maintain HOLD with a higher DDM-based Target Price of S$1.93.
Upside risks include faster-than-expected office rental recovery and downside risks include slower appetite for office space.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-01-25

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.93 Up 1.680