CapitaLand Commercial Trust - RHB Invest 2019-01-25: In A Better Position


CapitaLand Commercial Trust - In A Better Position

  • Maintain NEUTRAL but raise Target Price by 3% to SGD1.86, 1% upside, with a 5% yield.
  • CapitaLand Commercial Trust’s (CCT) 4Q/FY18 results met expectations. We have revised our FY19-21 DPU estimates by 1-4% factoring in strong momentum in Grade-A office rentals which is expected to continue in FY19-20.
  • Key catalysts are the announcement of redevelopment plans for 21CQ, accretive acquisition of remaining stake in CapitaSpring and overseas assets.
  • Despite a positive outlook, a 1.0x FY19 P/B valuation and FY19F yield of 5.0% are not compelling in our view so we would recommend investors to buy on dips.

Positive office rental outlook.

  • Based on CBRE preliminary data, Grade-A office rents rose 15% y-o-y in 2018 to SGD 10.80 psf. With limited Grade-A supply in the pipeline (c.1.1m sqft), we expect Grade-A rents to rise 5-10% in 2019. The favourable outlook would benefit CAPITALAND COMMERCIAL TRUST (SGX:C61U) which has about 15% of leases (as % of rental income) due for renewal this year.
  • With average expiring rents of these leases already 4% below current market rents, we expect a healthy positive reversion of 5-15% for 2019.

Plans to refurbish 21 Collyer Quay (21CQ).

  • Management noted that it is currently considering refurbishment plans for 21CQ (NLA of 200,000 sqft) with a view of re-leasing the entire space. To recap, HSBC is currently the sole tenant of the building and recently extended its lease-term until Apr 2020. Plans are still in early stages but CapitaLand Commercial Trust noted that refurbishment works would be planned to achieve a minimum downtime.
  • With office rental expected on an uptrend until 2021, we believe such a move will be favourable to unit holders. Management is also open to redeveloping or divesting the asset if a compelling opportunity arises.

Leasing works to commence on CapitaSpring.

  • Construction works are on track to be completed by 1H21F. As of now, JP Morgan signed up to be the anchor tenant for office space taking up c.24% of the NLA. Management plans to open a show suite on the site and commence leasing for the remaining space.
  • We see more upside to its targeted yield on cost of 5% if the office rental momentum continues.


  • For the markets overseas, management still prefers gateway cities in Germany for its sound fundamentals, but reiterated that overseas assets are unlikely to exceed 20% of its portfolio.
  • We also see the possibility of CapitaLand Commercial Trust exercising its call option to acquire the remaining 55% stake in CapitaSpring closer to its completion. Gearing is comfortable at 34.9%, presenting a debt headroom of c.SGD800m (assuming 40% levels) for acquisitions.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-01-25
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.86 UP 1.800