CapitaCommercial Trust

OCBC on 23 Jul 2012

CapitaCommercial Trust (CCT) reported 2Q12 distributable income of S$58.5m - 7.5% higher YoY. This translates to a DPU of 2.06 S-cents per share which is broadly in line with expectations. 2Q12 revenues came in at S$95.8m – up 5.2% YoY mostly due to revenue contribution by Twenty Anson, higher revenues from Raffles City and HSBC Building, and higher yield protection income for One George Street. Though Grade A office rentals have dipped a further 4-5% in 2Q12, we see short-term vacancy rates likely stabilizing for the remainder of FY12 due to limited CDB additions till 2H13. We continue to like CCT’s portfolio of prime office assets, and also note limited lease renewals of only 4.1% of office leases for the rest of FY12. At current price levels, however, we believe most positives are already priced in. Maintain HOLD with a higher fair value estimate of S$1.31, versus S$1.14 previously, due to stronger cap rate assumptions.

2Q12 results broadly in line
CapitaCommercial Trust (CCT) reported 2Q12 distributable income of S$58.5m, which was 7.5% higher YoY. This translates to a DPU of 2.06 S-cents per share which is broadly in line with expectations. 2Q12 revenues came in at S$95.8m – up 5.2% YoY mostly due to revenue contribution by Twenty Anson, higher revenues from Raffles City and HSBC Building, and higher yield protection income for One George Street.

RC Hotels master lease renewed to 2036
Portfolio occupancy was at 94.5% as of end 2Q12, flat from the 94.4% last quarter. We expect only 4.1% of office leases, by gross rental income, to be due to renewal for the rest of FY12, and believe rental reversions would likely turn positive by 1H13. Management has also renewed the RC Hotels master lease to 2036, with a step-up minimum rent structure and rental review every five years. We also saw S$48.4m of revaluation gains from portfolio assets this quarter; cap rates for CCT’s Grade A assets are at 4.0%.

Additional lettable office space at Golden Shoe
At Golden Shoe, management plans to convert storeroom space into lettable office space and carry out lift enhancement works in 3Q12. This would cost S$0.6m, with a projected ROI of 14%. In addition, CapitaGreen’s construction and 6BR’s AEI remain on schedule. At 6BR, 200k sq ft of space was targeted for upgrading in FY12, of which 49% was completed YTD.

Maintain HOLD with an increased fair value estimate of S$1.31
Though Grade A office rentals have dipped a further 4-5% in 2Q12, we see short-term vacancy rates likely stabilizing for the remainder of FY12 due to limited CDB additions till 2H13. We continue to like CCT’s portfolio of prime office assets, and also note limited lease renewals for the rest of FY12. Our fair value estimate is raised to S$1.31, from S$1.14 previously, due to stronger cap rate assumptions. At current price levels, however, we believe most positives are already priced in. Maintain HOLD; we would turn buyers at S$1.26.