CapitaLand Commercial Trust (CCT) - DBS Research 2018-10-02: Committed Occupancy At Asia Square Tower 2 Hits 97%

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CAPITALAND COMMERCIAL TRUST SGX:C61U

CapitaLand Commercial Trust (CCT) - Committed Occupancy At Asia Square Tower 2 Hits 97%

• The Work Project, a co-working operator, is taking up c.72,000 sqft of space at Asia Square Tower 2 and Capital Tower.
• Committed occupancy at Asia Square Tower 2 now at 97% which is above expectations.
• Maintain BUY, Target Price of S$2.12.

What’s New

Signs The Work Project, co-working operator, as a tenant

• CapitaLand Commercial Trust (CCT) has secured The Work Project as a tenant across the following buildings:
  • Asia Square Tower 2 (AST2) – c.41,000 sqft on level 10 and 11 for 5 years (from 1 January 2019 to 31 December 2023) with an option to renew for a further five years. This increases the committed occupancy at AST2 from c.92% as at 30 June 2018 to c.97%.
  • Capital Tower (CT) –
    1. c.22,000 sqft on level 20 for c.5 years (from 1 January 2019 to 15 January 2024) with an option to renew for a further five years and
    2. c.9,000 sqft on level 24 for c.5 years (from 1 January 2019 to 15 January 2024) with an option to renew for a further five years.
    The 31,000 sqft of space represents c.4% of space at Capital Tower. Capital Tower has c.27% of leases by gross rental income expiring in FY19.

~ SGinvestors.io ~ Where SG investors share

• Total aggregate rent payable under the leases at Asia Square Tower 2 and Capital Tower is c.S$43.4m which works out to be c.S$10 psf/mth, close to current market rents. https://sginvestors.io Assuming that the rent achieved at Asia Square Tower 2 is c.S$11 psf/mth, in line with signing rents of S$11-12 psf/mth achieved in 2Q18, this translates to rent of c.S$9 psf/mth at Capital Tower.
• In addition, the JV which is developing CapitaSpring and in which CapitaLand Commercial Trust (CCT) has a 45% interest will also sublease c.2,500 sqft of space at Capital Tower on level 20 from 1 January 2019 to 31 December 2020, with an option to extend on the same terms for a maximum period of 12 months. The estimated rent is c.S$0.8m including the option to extend. The space taken up at Capital Tower will be used as a show suite for the CapitaSpring project.
• The Work Project is a co-working operator in which CCT’s sponsor, CapitaLand, has taken a 50% stake for S$27m. SG investors.io The Work Project currently occupies c.177,000 sqft of flexible space in Singapore and Hong Kong.

Our thoughts

• The announcement that committed occupancy at Asia Square Tower 2 has reached c.97% is above expectations as we had previously assumed 95% occupancy in FY19, with signing rents within our expectations. 
• Conversely, the potential signing rents of c.S$9 psf at Capital Tower is a touch lower than the c.S$10 psf/mth we had assumed in FY19.
• Nevertheless, we believe investors will react positively to Asia Square Tower 2 now close to fully leased, in line with management’s target to improve occupancy from the 88.7% when it first announced its plans to acquire Asia Square Tower 2 in 2017. sginvestors.io
• For now, we maintain our earnings estimates pending CCT’s 3Q18 results release and reiterate our BUY call with of Target Price of S$2.12.
• https://sginvestors.io | CapitaLand Commercial Trust (CCT) remains one of our top S-REIT picks given its exposure to the expected multi-year recovery in office rents in Singapore and upside risk to our earnings estimates from the development of proceeds from the recent sale of Twenty Anson.

Mervin SONG CFA DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2018-10-02

SGX Stock Analyst Report BUY Maintain BUY 2.120 Same 2.120