CapitaLand Commercial Trust - DBS Research 2018-04-13: CapitaSpring Off The Starting Line

CapitaLand Commercial Trust - DBS Vickers 2018-04-13: CapitaSpring Off The Starting Line CAPITALAND COMMERCIAL TRUST C61U.SI

CapitaLand Commercial Trust - CapitaSpring Off The Starting Line

  • Golden Shoe redevelopment to be renamed as CapitaSpring.
  • Signs JP Morgan as the first anchor tenant at CapitaSpring.
  • Transaction highlights the importance of CapitaLand Commercial Trust having multiple buildings across Singapore’s CBD.
  • Maintain BUY, Target Price S$2.10.

What’s New

  • CapitaLand Commercial Trust (CCT) announced that it has secured JP Morgan as an anchor tenant for the Golden Shoe redevelopment project which it is jointly developing with its sponsor, CapitaLand and Mitsubishi Estate.
  • Concurrently, CCT also revealed that the office tower at the Golden Shoe site will be named as CapitaSpring.
  • JP Morgan will be taking up c.155,000 sqft of space at levels 24 to 30. This represents close to a quarter of the 635,000 sqft of NLA at CapitaSpring. JP Morgan currently occupies close to 155,000 sqft at Capital Tower which is owned by CCT.
  • We understand the lease signed by JP Morgan at CapitaSpring is in excess of three years.

Our Thoughts

  • We believe the market will take this news positively as it instils confidence that even at an early stage, CCT has already built a base income for CapitaSpring.
  • While CCT has not disclosed the exact rents that JP Morgan will pay at CapitaSpring, we would not be surprised that as the initial anchor tenant JP Morgan would be offered discounts with rents potentially below the underwriting assumptions of S$12-14 psf/mth. However, we are not concerned as this is the typical strategy employed by landlords in the initial leasing phase before raising asking rents for subsequent leases.
  • In terms of space being vacated by JP Morgan at Capital Tower, given it is still three years away, there is plenty of time to find a replacement tenant. Should CCT decide to sub-divide the space previously occupied by JP Morgan, there is also potential for CCT to raise average rents for this space.
  • This news also highlights the importance of CCT having multiple buildings in Singapore CBD to cater for the changing needs of its tenants and the strategic importance of CCT purchasing Asia Square Tower 2 last year.
  • For now, we maintain our BUY call and Target Price of S$2.10. Our bullish stance on CCT is premised on the expected multi-year recovery in office rents given limited supply over the next three years and pick-up in various services industries which are the main demand drivers for CBD office space.
  • Evidence of this recovery can be seen from JLL’s data which showed a 3% q-o-q increase in Grade A rents in 1Q18.

Mervin SONG CFA DBS Vickers | Derek TAN DBS Vickers | Singapore Research Team DBS Vickers | 2018-04-13
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.100 Same 2.100