CapitaLand Commercial Trust - OCBC Investment 2019-07-18: A Busy & Eventful Quarter


CapitaLand Commercial Trust - A Busy & Eventful Quarter

2Q19 results within our expectations

  • CapitaLand Commercial Trust (SGX:C61U) announced its 2Q19 results which met our expectations. Gross revenue and NPI grew 3.0% and 0.8% y-o-y to S$101.0m and S$78.4m, respectively. DPU rose 1.9% to 2.20 S cents.
  • For 1H19, CapitaLand Commercial Trust’s NPI increased by 2.1% to S$158.2m, while DPU was up 2.8% to 4.40 S cents and this formed 48.2% of our full-year forecast.

Positive rental reversions

  • Rental reversions came in strong in 2Q19. Committed rents (psf/month basis) at Asia Square Tower 2, Six Battery Road, One George Street and CapitaGreen were S$11.87-S$13.50, S$12.90- S$13.20, S$9.50-S$10.80 and S$12.00-S$13.30, versus average expired rents of S$10.58, S$11.70, S$9.10 and S$11.62, respectively.

Overhang lifted for 21 Collyer Quay; AEI + acquisition proposed

  • Separately, CapitaLand Commercial Trust also announced that it has secured Wework Singapore Pte Ltd as a new tenant for its 21 Collyer Quay property. The 7-year lease will commence from early 2Q21. This lifts the overhang on the property as current tenant HSBC’s lease will be expiring in Apr 2020. There will be some downtime as CapitaLand Commercial Trust will close the entire building for upgrading works from 2Q20 to 4Q20 at an estimated cost of S$45m and targeted ~9% ROI.
  • An AEI on 6 Battery Road was also disclosed, with a targeted ROI of ~8% on S$35m of capex. Some disruption is expected but the office tower will remain in operation.
  • Last but not least, CapitaLand Commercial Trust proposed to acquire an effective 94.9% interest in Main Airport Center, a freehold office property in Frankfurt, from its sponsor CapitaLand (SGX:C31). The proposed transaction is based on an agreed property value of EUR265.0m (~S$407.8m) and an estimated NPI yield of 4.0%.
  • A private placement exercise was launched, with S$220m of gross proceeds expected to be raised to partially finance this acquisition. The final issuance price of S$2.095 comes in at the upper-end of the initial indicative range of S$2.043-S$2.105 and represents a discount of 3.5% to CapitaLand Commercial Trust’s last closing price prior to the placement announcement.
  • After factoring these developments in our model and lowering our risk-free rate assumption from 2.3% to 2.0% on the basis of a more conducive interest rate environment, our fair value estimate increases from S$1.88 to S$1.92.

OCBC Research Team OCBC Investment Research | 2019-07-18
SGX Stock Analyst Report SELL MAINTAIN SELL 1.92 UP 1.880