CapitaLand Commercial Trust - OCBC Investment 2018-07-20: Creating Value, But Macro Uncertainties Remain

CapitaLand Commercial Trust - OCBC Investment Research 2018-07-20: Creating Value, But Macro Uncertainties Remain CAPITALAND COMMERCIAL TRUST SGX:C61U

CapitaLand Commercial Trust - Creating Value, But Macro Uncertainties Remain

  • 2Q18 DPU fell 4.0% y-o-y.
  • Rental reversions mixed.
  • Cap rate compression.

2Q18 results within our expectations

  • CapitaLand Commercial Trust (CCT) reported its 2Q18 results which met our expectations.
  • Gross revenue and NPI jumped 12.0% and 12.5% y-o-y to S$98.0m and S$77.7m, respectively. However, DPU dipped 4.0% y-o-y to 2.16 S cents due mainly to two equity fund raising exercises.
  • For 1H18, CCT’s NPI rose 11.5% to S$154.9m, while DPU of 4.28 S cents represented a decline of 6.1% and formed 48.2% of our FY18 forecast.

Office market gaining traction

  • Committed rents (psf per month basis) in 2Q18 at Asia Square Tower 2 rose 4.1% q-o-q to S$10.10 psf/month in 2Q18, based on CBRE data. This augurs well for CCT’s leasing momentum ahead, in our view.
  • It remains in advanced negotiations to fill up the vacant 8.1% of space at AST2. In general, stronger demand has been seen from the tech sector, co-working operators and financial services tenants.

Capital recycling; higher portfolio valuation

  • During the quarter, CapitaLand Commercial Trust (CCT) completed the acquisition of a 94.9% stake in the Gallileo property in Frankfurt, Germany, on 18 Jun. Late last month, CCT entered into an agreement to sell its Twenty Anson property for a total consideration of S$516.0m (net proceeds of ~S$512.5m). This translates into an exit yield of ~2.7%. We believe the two transactions reflect management’s ability to create value for its unitholders, as the acquisition in Frankfurt was done at an initial NPI yield of ~4.0%.
  • A valuation gain of S$178.9m was recorded in 1H18 due to a 10 bps assumption to 7.4% from 6.9%.
  • Coupled with some marginal changes in our DPU forecasts, we derive a fair value estimate of S$1.69 (previously S$1.84).

Wong Teck Ching Andy OCBC Investment Research | https://www.iocbc.com/ 2018-07-20
SGX Stock Analyst Report HOLD Maintain HOLD 1.69 Up 1.840