CapitaLand Commercial Trust - RHB Invest 2020-04-21: Assessing COVID-19’s Impact


CapitaLand Commercial Trust - Assessing COVID-19’s Impact

Office leasing activities come to a pause – lower average expiring rent provides buffer.

  • The circuit breaker measures currently in place in Singapore have disrupted leasing activities, ie viewings, handovers, and fit out works. As such, CapitaLand Commercial Trust expects longer leasing lead time, with companies focusing on cost containment and prioritising renewals. Car parks and other income, which typically accounts for 5% of the total, have also taken a hit.
  • About 14% of office leases by rental income are due for renewal this year, but the average expiring rent at SGD9.43psf – c.20% below the market average pre-pandemic – provides some buffer.
  • The retail and hospitality segments accounted for 22% of FY19’s income, derived mainly from CapitaLand Commercial Trust’s 60% stake in Raffles City Singapore, which has seen a more direct impact.

Downside risks to CapitaSpring if COVID-19 prolongs.

  • Associate CapitaSpring’s (45% stake) redevelopment remains on track for a 1H21 completion, although project site works have temporarily halted. The building is 35% pre-leased as at Dec 2019, and we foresee rental pressure on upcoming leases.
  • Management has guided for a yield on cost of 5%, which translates into office rent of c.SGD11-12psf/month. We see downside risks to these assumptions if the pandemic prolongs.

Co-working exposure c.7% of total.

  • Upgradation works at the 21 Collyer Quay building are on track for completion by 4Q20. Co-working operator WeWork is expected to take possession of the building on a 7-year lease starting 2Q21. CapitaLand Commercial Trust said the leasing agreements are still intact and, so far, management had not received any requests for changes to WeWork’s leases.
  • For Six Battery Road, CapitaLand Commercial Trust expects some delay in phasing works and longer lease times for upgraded spaces.

No changes to the proposed merger.

Earnings and assumption changes.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-04-21
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