Tuesday 30 October 2012

CapitaCommercial Trust

OCBC on 29 Oct 2012

CapitaCommercial Trust (CCT) reported 3Q12 distributable income of S$57.9m - up 11.6% YoY mostly due to contributions from Twenty Anson, higher revenues from portfolio assets and yield protection income from One George Street (OGS). This is mostly in line with expectations and we note 9M12 distributable income now makes up 75% of our FY12 forecast. As indicated in our last two reports, we have been expecting an uptick in office fundamentals and believe this was mostly validated by CCT’s 3Q portfolio data-points: 1) occupancy edged up QoQ to 97.1% in 3Q12 from 96.2% in 2Q, and 2) average portfolio rent increased to S$7.53 psf – the first increase seen after seven consecutive quarters of decline from 4Q10. Maintain BUY with an increased fair value estimate of S$1.70, versus S$1.62 previously, as we update our model for firmer rental numbers and cap rates.

3Q12 distributable income in line
CapitaCommercial Trust (CCT) reported 3Q12 distributable income of S$57.9m - up 11.6% YoY mostly due to contributions from Twenty Anson, higher revenues from portfolio assets and yield protection income from One George Street (OGS). This is mostly in line with expectations and we note 9M12 distributable income now makes up 75% of our FY12 forecast. 3Q12 distributable income translates to a distribution per unit (DPU) of 2.04 S-cents for the quarter, translating to an annualized distribution yield of 5.1% on the last closing price (S$1.58 per unit). 3Q12 topline came in at S$95.5m, increasing 7.0% YoY – again generally within expectations. 

Sector fundamentals driving healthy portfolio performance
As indicated in our last two reports, we have expecting an uptick in office fundamentals from 3Q12 till at least 2H13 and believe this was mostly validated by data-points from CCT’s 3Q12 performance: 1) portfolio occupancy edged up QoQ to 97.1% in 3Q12 from 96.2% in 2Q12, and 2) average portfolio rent per square foot increased to S$7.53 – the first increase seen after seven consecutive quarters of decline from 4Q10. We expect this to continue ahead - note that a third of CCT’s office net leasable area is up for renewal in FY13 and that current market rents currently stand at S$9.80 psf.

Maintain BUY
Since we have upgraded CCT to a BUY on 21 Aug 2012, the REIT has appreciated 14% over this time (significantly outperforming the STI which is down marginally -0.1%). At this juncture, we continue to like CCT for its prime assets, relatively stable portfolio drivers and strong execution from management. CCT recently announced a S$34.7m upgrading at Raffles City while OGS’s AEI and CapitalGreen’s construction progression remains on track. Maintain BUY with an increased fair value estimate of S$1.70, versus S$1.62 previously, as we update our model for firmer rental numbers and cap rates.

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