CapitaLand Commercial Trust (CCT) - UOB Kay Hian 2018-07-20: 2Q18 DPU In Line; Firm Outlook For Singapore Office Properties

CapitaLand Commercial Trust (CCT) - UOB Kay Hian Research 2018-07-20: 2q18: Dpu In Line; Firm Outlook For Singapore Office Properties CAPITALAND COMMERCIAL TRUST SGX:C61U

CapitaLand Commercial Trust (CCT) - 2Q18: DPU In Line; Firm Outlook For Singapore Office Properties

  • CCT’S 1H18 adjusted DPU is in line, rising 10.9% y-o-y.
  • Prospects for Singapore property appear promising on favourable demand-supply dynamics. Capital values for Singapore office property remained firm, with a slight 0.1ppt fall in cap rates in 1H18.
  • CCT remains on the prowl for accretive acquisition opportunities in Singapore and overseas. Maintain BUY with a lower target price of S$1.99 as we raise our risk-free rate assumption by 0.25ppt to 2.75%.


No surprises in 2Q18.

  • CapitaLand Commercial Trust’s (CCT) 2Q18 contributions included Gallileo (acquired on 18 Jun 18) as well as a stronger performance from CapitaGreen. 
  • The results were broadly in line with our expectations, with 1H18 DPU representing 48.1% of our full-year forecast.

Slight uptick in portfolio occupancy, helped by Gallileo.

  • The group’s portfolio occupancy enjoyed an uptick to 9%, which is above the market’s CBD occupancy of 94.1%.

Future growth from CapitaSpring.

  • CCT has retained J.P. Morgan as a key tenant in its portfolio, extending its lease at Capital Tower and securing its relocation to CapitaSpring (committing close to 25% of NLA) after the development’s completion, which is targeted in 1H21.


Closing the gap between 2018 expiring and market rents.

  • While the average office rent of CCT’s Singapore portfolio eased 0.5% q-o-q, the gap between 2018 expiring rent and market rents is closing (6% in 2Q18 vs 15% in 4Q17). 
  • Rental reversions were AST2 (-17% to -9.5%), CapitaGreen (-14.6% to 13.8%), Six Battery (-19.2% to 11.6%) and One George Street (-1.3% to 3.0%). The monthly rents committed ranged at AST2 (S$11.00-12.00psf pm), CapitaGreen (S$10.50-14.00psf pm), Six Battery Road (S$10.00-13.80psf pm) and One George Street (S$9.10-9.50psf pm). 
  • The group also has a well spread portfolio lease expiry profile, with a weighted average lease term to expiry of 6.0 years.

Aggregate leverage stabilised at 37.9% in 2Q18 (flat q-o-q).

  • Total gross debt increased 8.1% y-o-y to S$4,398.9m due to higher borrowings to fund acquisitions. Some 85% of borrowings remain at fixed-rate, minimising interest exposure risk. 
  • In terms of sensitivity to rising rates, a 0.5ppt rise is S$1,482m.

Appetite for more accretive acquisitions.

  • In Singapore, CCT still has a call option to acquire the balance 55% interest in the commercial component of CapitaSpring, within five years from the building’s construction (1H21). 
  • Management continues to be upbeat on selected overseas countries, particularly Germany where investment opportunities are ample. The target is for overseas assets to account for 10-20% of total deposited properties but no time frame has been provided for this.


  • We trim our 2018-20 DPU forecasts by up to 3%, mainly factoring in the divestment of Twenty Anson (and use of S$512.5m net divestment proceeds to pare down debt).


  • BUY with a lower target price of S$1.99 (previously S$2.11). This is to reflect a 25bp rise in our risk-free rate assumption to 2.75%. 
  • Our valuation is based on DDM (required rate of return: 6.7%, terminal growth: 2.5%).


  • Higher-than-expected signing rentals and occupancies at CapitaSpring.
  • More accretive acquisitions in Germany or Singapore.
  • Higher office rentals, positive newsflow on leasing activity and employment economic growth.

Andrew CHOW CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2018-07-20
SGX Stock Analyst Report BUY Maintain BUY 1.99 Down 2.110