Price (at 08:55, 27 Aug 2013 GMT) S$1.36
Valuation S$ 1.85
Office rent recovery given tight CBD supply
CapitaCommercial Trust presented at Day One of our Asean conference in Singapore.
Vacancy of less than 5%. CBRE’s 2Q13 Grade A portfolio occupancy rate reached 95.1%. This, together with limited supply of new office space in the CBD, suggests rent recovery in 2H13 and into 2014. CCT’s portfolio occupancy rate is a shade higher at 95.8%. The group has seen demand from small and medium-size users in the past six months and has rent reversions in its Grade A buildings at S$9.93 per sq ft, higher than the market average (CBRE) of S$9.55 per sq ft. On a portfolio basis, its average passing rents have seen four consecutive quarters of improvement.
CapitaGreen development. This 700,000 sq ft project is on track for completion in 4Q14. This will account for a bulk of the 1.2m sq ft supply in the CBD next year. Further, there is no new supply on the CBD in 2015. CCT believes they are in a good position to tap the demand from tenants with lease expiries in late-2014/2015.
Acquisitions. With a gearing of 28.9%, CCT has a debt capacity of S$1.2bn assuming 40% gearing. Potential deals need to fit the company’s acquisition criteria, but current pricing is not compelling. Further, there might be a need for income support for such transactions.
Cap rates. CCT said office cap rates were unchanged HoH at 3.75% for its prime properties and 4.25% for Raffles City Tower and Wilkie Edge. The group added that the rent assumptions used by the independent valuers are conservative relative to its own achieved rent roll. Hence, even if cap rates rise, it could be partially mitigated by stronger net property income from the portfolio.
Earnings and target price revision
No changes to DPU estimates or TP.
12-month price target: S$1.85 based on a DCF methodology.
Catalyst: Portfolio passing rent growth in 3Q13 and successful leasing of CapitaGreen in 2014.
Action and recommendation
CCT is executing well, with portfolio occupancy rate of 95.8% and efforts to backfill vacancy in some of its buildings. Given that office rents have bottomed, we expect CCT to continue to see higher average passing rents over the next few quarters. The stock is on 0.81x P/BV and offers a yield of 5.6% in FY14E.
Publish date: 27/08/13