CAPITALAND COMMERCIAL TRUST (SGX:C61U)
CapitaLand Commercial Trust - A Robust Year
- CapitaLand Commercial Trust's FY18 NPI and DPU outperformed our estimates. 17% and 19% boost in revenue and NPI, respectively, on the back of contribution from AST2 and Galileo.
- Biggest improvements in NPI growth and margins at Capital Tower & Six Battery Road.
- 99.4% portfolio occupancy is the highest in eleven years, lifted by AST2.
- Fate of HSBC Building still up in the air, though the Manager is leaning towards the options of refurbishment/reletting or redevelopment.
- Maintain ACCUMULATE with higher Target Price of S$1.93 (prev S$1.90).
The Positives
Improved NPI margins at Capital Tower and Six Battery Road.
- Biggest improvements in y-o-y NPI growth (c.3%) and margins (+3ppts) were seen at these two properties in FY18.
- In addition, average committed rents at Six Battery Road – the property yielding the highest rent per square foot per month in CAPITALAND COMMERCIAL TRUST (SGX:C61U)’s portfolio – had been trending upwards (q-o-q), with average expiring leases seen to trend downwards in 2019 and 2020.
99.4% portfolio occupancy is the highest in eleven years, lifted by AST2.
- The last time this figure was crossed was in 2007.
- Occupancy was largely lifted by AST2, which saw the introduction of co-working operator The Work Project Kingdom (TWPK) (which CAPITALAND LIMITED (SGX:C31) owns a 50% stake in). TWPK is also a tenant at Capital Tower.
The Negatives
Fate of HSBC Building still up in the air.
- CapitaLand Commercial Trust is still evaluating options – including refurbishment and re-letting, redevelopment and divestment – for the HSBC Building, after the current lease to HSBC ends in Apr 2020. The Manager is leaning towards the first two options though it does not rule out a divestment if a good offer comes along.
Outlook
- Taking CapitaLand Commercial Trust as an almost pure-play proxy (save for Galileo) for the Singapore prime Grade A CBD office market, we expect to see higher or more positive rental reversions as the committed rents progressively surpass their respective expiring rents.
- Already securing JP Morgan as a key anchor tenant for its upcoming CapitaSpring development, the marketing showsuite is slated to launch in 1H2019.
- In other inorganic growth pursuits, Germany is likely to continue being one of the next sources of CapitaLand Commercial Trust’s overseas acquisitions. However, a mooted Deutsche Bank-Commerzbank merger, as time closes nearer towards “Brexit day”, could potentially overhang the Galileo lease – Commerzbank is its sole office tenant.
Maintain ACCUMULATE with higher Target Price of S$1.93 (prev S$1.90).
- Our target price has been adjusted upwards, in line with the continued upcycle in office rents. This translates to a FY19e yield of 5.0% and P/NAV of 1.0x.
Tara WONG
Phillip Securities Research
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https://www.stocksbnb.com/
2019-01-25
SGX Stock
Analyst Report
1.93
UP
1.900
