CAPITALAND COMMERCIAL TRUST (SGX:C61U)
CapitaLand Commercial Trust - Rentals Continue To Firm
- CapitaLand Commercial Trust’s 1Q19 DPU +3.8% y-o-y.
- Positive rental reversions.
- Valuations not appealing.
1Q19 results within our expectations
- CAPITALAND COMMERCIAL TRUST (SGX:C61U)’s 1Q19 results met our expectations. Gross revenue and NPI rose 3.5% and 3.4% y-o-y to S$99.8m and S$79.8m, respectively.
- Growth was driven largely by Gallileo and Asia Square Tower 2 (AST2), but partially offset by the divestment of Twenty Anson.
- DPU grew 3.8% y-o-y to 2.20 S cents due to lower finance costs and a distribution of tax-exempt income of S$3.4m (~0.091 S cents per unit). 1Q19 DPU formed 24.2% of our FY19 forecast.
Robust signing rents for renewals/new leases in 1Q19
- Positive rental reversions were largely achieved in 1Q19. Committed rents (psf/month basis) at AST2, Six Battery Road, One George Street and CapitaGreen were S$11.00-S$12.50, S$11.70- S$13.50, S$9.50-S$10.80 and S$12.30-S$13.30, versus average expired rents of S$10.20, S$11.85, S$9.91 and S$12.13, respectively. We believe this was underpinned by CapitaLand Commercial Trust’s good quality assets and continued momentum in Singapore’s office market.
- Core Grade A CBD office rents rose 3.2% q-o-q to S$11.15 psf/month in 1Q19, the sixth consecutive quarter whereby rents grew more than 3% q-o-q, based on data from CBRE.
- Looking ahead, CapitaLand Commercial Trust’s average expiring rents of S$10.44 psf/month in 2019, S$9.60 psf/month in 2020 and S$10.72 psf/month in 2021 are currently below the market spot rent of S$11.15 psf/month, implying room for favourable rental reversions ahead, especially in 2020, barring any unforeseen circumstances.
- Portfolio occupancy remains high at 99.1%, versus 99.4% as at end-FY18.
FY19F distribution yield of 4.7%, as at 18 Apr close
- While we keep our forecasts unchanged, we lower our risk-free rate assumption from 2.7% to 2.3% on account of a more dovish interest rate environment. Correspondingly, our fair value estimate increases from S$1.83 to S$1.88.
- Based on CapitaLand Commercial Trust’s closing price of S$1.93 (18 Apr) and our forecasts, it is trading at FY19F distribution yield of 4.7% and P/B ratio of 1.05x. The former comes in at 1.4 standard deviations below its 8-year average forward yield of 5.6%.
- Maintain HOLD.
Andy Wong Teck Ching CFA
OCBC Investment Research
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https://www.iocbc.com/
2019-04-22
SGX Stock
Analyst Report
1.88
UP
1.830
