Tuesday, 22 April 2014

CapitaCommercial Trust

Kim Eng on 21 Apr 2014

  • 1Q14 results in line with our expectations. DPU rose 7.2% YoY to 2.08 cts.
  • 12% pre-commitment signed to-date for CapitaGreen. Cargill leases 51,000 sq ft and likely paying SGD9-10 psf per month.
  • Reiterate HOLD with DDM-based TP raised to SGD1.66.
Results in line with expectations
CCT saw a 3.2% YoY rise in 1Q14 revenue to SGD64m, bolstered by higher income from most properties except One George Street, whose Deed of Yield Protection expired on 10 Jul 2013. 1Q14 DPU grew 7.2% YoY to 2.08 cts, driven by lower interest expense and higher NPI. Balance sheet remained strong, with a low gearing of 30% and 81% of borrowings on fixed rates. CCT has debt headroom of SGD1.2b, assuming a gearing of 40%. Portfolio occupancy rate edged up to 99.4% from 98.7% thanks to a mix of new and renewed leases, while monthly average office portfolio gross rent continued its uptrend, increasing to SGD8.22 psf from SGD8.13 psf in 4Q13.

CapitaGreen achieves 12% pre-commitment
CapitaGreen has secured a pre-commitment for 12% of its NLA of 700,000 sq ft from Cargill (51,000 sq ft), Bordier & Cie (12,000 sq ft) and an international gym operator (18,000 sq ft). These first-mover tenants are likely to be loss leaders, possibly paying a monthly rental of SGD9-11 psf, lower than CCT’s target of SGD12-14 psf for subsequent smaller floor-plate tenants. We see challenges ahead as CCT’s pre-leasing activities will coincide with those of the 782,000-sq-ft Asia Square Tower 2 (TOP 3Q13; 60% pre-committed) and 527,000-sq-ft South Beach Development. We expect the next significant increase in DPU to occur only in FY15 after the completion of CapitaGreen. We raise our FY14E-16E DPU estimates by 1.4-2.3% on interest savings and better growth prospects. Reiterate HOLD with a higher DDM-derived TP of SGD1.66 (previously SGD1.50).

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