CapitaCommercial Trust

OCBC on 23 Apr 2012

CapitaCommercial Trust (CCT) reported a 1Q12 distributable income of S$53.9m, up 3.4% YoY. This is mostly in line with consensus and our expectations, making up 27% of our full year forecast. DPU for the quarter is 1.90 S-cents. Top-line came in at S$87.4m - 3.9% lower YoY and tracking well to our S$362.9m FY12 forecast. The top-line dip was mainly due to negative rental reversions and lower portfolio occupancy, particularly at 6 Battery Rd (6BR). Despite this, we saw a lift in distributable income due to lower property expenses, higher interest income and a decline in trust/interest expenses. Management reports that CapitaGreen remains on track for completion in 4Q14, and extensive enhancement works at 6BR would be carried out in phases till end-2013. We currently see key risks for the share price stemming from further softening of the domestic office sector, though any downside is likely capped by a currently undemanding valuation (0.8x PB) and a fairly attractive yield (5.6%) for high quality Grade A office exposure. Maintain HOLD with an unchanged fair value estimate of S$1.14.

1Q12 results in line
1Q12 distributable income was S$53.9m, up 3.4% YoY. This is mostly in line with consensus and our expectations, making up 27% of our full year forecast. DPU for the quarter is 1.90 S-cents. Top-line came in at S$87.4m - 3.9% lower YoY and tracking well to our FY12 forecast. The top-line dip was mainly due to negative rental reversions and lower portfolio occupancy, particularly at 6BR. Despite this, we saw a lift in distributable income due to lower property expenses, higher interest income and a decline in trust/interest expenses.

Inflection point in rental reversions ahead
Overall portfolio occupancy remained stable at 96% in 1Q12, marginally higher than 95.8% in the previous quarter mostly due to the uplift from 20 Anson which is 100% occupied. CCT’s Grade A office occupancy was at 94.4%, again higher than 93.9% last quarter. Rental reversions remained negative in 1Q12, though we expect an inflection point ahead as we approach the trough in expiring rents signed over the last crisis.

CapitaGreen remains on track
Management reports that CapitaGreen remains on track for completion in 4Q14, and extensive enhancement works at 6BR would be carried out in phases till end-2013. CCT targets to enhance 40% (200k sq ft) of total net lettable area in FY12, of which a quarter has been completed in the 1Q12.

S$570m term loan refinanced
In 1Q12, CCT also refinanced the S$570m term loan due Mar 12, secured on Capital Tower, with unsecured facilities from banks and extended the average term to maturity to 3.3 years from 2.8 years. The gearing ratio increased marginally to 30.5% from 30.2% QoQ with the interest coverage stable at 4.1 times.

Maintain HOLD
We currently see key risks for the share price stemming from further softening of the domestic office sector, though any downside is likely capped by a currently undemanding valuation (0.8x PB) and a fairly attractive yield (5.6%) for high quality Grade A office exposure. Maintain HOLD with an unchanged fair value estimate of S$1.14.