CapitaLand Commercial Trust - CGS-CIMB Research 2019-12-09: Riding The Office Upcycle


CapitaLand Commercial Trust - Riding The Office Upcycle

  • New leases from banking and financial services, IT and hospitality service sectors underpinned leasing activities in 3Q19.
  • We expect new contributions from Main Airport Center (MAC) to boost 4Q income.
  • Maintain ADD with Target Price of S$2.25.

Average Singapore portfolio rent held steady q-o-q

  • CAPITALAND COMMERCIAL TRUST (SGX:C61U)’s Singapore portfolio committed occupancy slipped 0.2% pt q-o-q to 98.1% at end-3Q while average portfolio rent remained fairly stable q-o-q at S$10.04 psf. The trust renewed 480k sq ft of space in 3Q19, of which 57% were new leases. Demand came from banking, financial services, IT and travel and hospitality sectors.
  • CapitaLand Commercial Trust enjoyed positive rental reversion with signing rents in the range of S$9.20-13.00 psf vs. expiring rents of S$8.16-11.79 psf. The trust has a further 4% and 19% of gross rental income to be re-contracted for the remainder of FY19 and FY20.

Main Airport Center (MAC) to contribute from 4Q

  • CapitaLand Commercial Trust completed the acquisition of a 94.9% interest in Main Airport Center (MAC) in Frankfurt in Sep 2019. As such, it should benefit from a full quarter’s contribution from this property in 4Q. In addition, committed occupancy for the property, located within the Frankfurt Airport office submarket, has ticked up to 93% from 90% in 2Q19.
  • Meanwhile, CapitaLand Commercial Trust has increased pre-commitments at CapitaSpring to 31% with two new leases, totaling 45k sq ft, signed. Structural works are in progress for the Green Oasis at levels 17-20. The building is expected to be completed in 1H21.

Strong balance sheet, planned AEIs to boost returns

  • CapitaLand Commercial Trust’s gearing stood at 35.5% at end-3Q and average debt maturity of 3.3 years. 92% of its debt is on fixed rates thus mitigating the trust from interest rate volatility. It has another 11% of debt to be refinanced in 4Q19-FY20.
  • CapitaLand Commercial Trust is well placed to undertake planned asset enhancement initiatives for 6 Battery Rd and 21 Collyer Quay in 2020/21, totaling S$80m, with a target return on investment of 8-9%.

Maintain ADD rating

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | 2019-12-09
SGX Stock Analyst Report ADD MAINTAIN ADD 2.250 SAME 2.250