STI : 3,192.90
Price Target : 12-Month S$ 1.46 (Prev S$ 1.43)
CapitaGreen takeup is key
• 3Q13 DPU of 2.04 Scts in line
• Underlying portfolio occupancy showing strength
• CapitaGreen yet to secure first tenant
• HOLD, TP revised to S$1.46
3Q13 results in line. CapitaCommercial Trust (CCT) announced gross revenue of S$95m (-0.6% y-o-y) and net property income of S$72.6m (-3.5% y-o-y).
The lower rental income was largely due to the cessation of the income support for One George Street (-S$4m,- 25% y-o-y) and Capital Tower (-S$0.7m, -4.4%), partially mitigated by (i) higher revenue from most of its office properties, especially Six Battery Road (+S$2.4m, +12.5%) and Raffles City (+S$1.2m,+3.7%). Distributable income to unitholders of S$58.8m (DPU of 2.04 Scts) was 1.6% higher y-o-y due to (i) lower interest expenses upon the expiry of 3.5% interest rate swaps in March, and (ii) distribution from Quill Capita Trust (QCT) of S$1.7m and (iii) a lower payout ratio in 3Q12 due to the exemption of retention of close to S$7.5m in tax exempt income from QCT.
Underlying portfolio performance strengthened sequentially. Committed portfolio occupancy ticked up 1.8ppts to 97.6% from 95.8%.due to improved occupancies at Capital Tower and 6 Battery Road, while the average office rent for the portfolio increased slightly to S$8.03/mth. The trust signed new leases and renewals of close to 347,000 sqft in 3Q13, of which 42% were new leases with demand coming from a wide variety of trade sectors (manufacturing, business consultancy and energy). At One George Street, the Manager has managed to back-fill some of the space vacated by Wong Partnership in July, resulting in committed occupancies improving to 94.2%. Committed rents ranged between S$8.60 and S$10 psf pm. In addition, CapitaLand Group signed an advanced lease to increase its occupied space within Capital Tower from 21k sqft to 140k sqft, translating to c.20% of NLA. They are however, only expected to move in progressively over 2014.
CapitaGreen yet to break ice with 1st tenant. While still a year away from completion, CapitaGreen has not signed a tenant yet but we understand the Manager is in advanced negotiations with potential tenant prospects. We estimate the property will achieve occupancy of 70% by end 2014, with contribution only in 2H15 after rent free periods/fit-outs are completed. We estimate that every 10ppt difference in occupancy assumptions for CapitaGreen will impact FY15F DPU by 0.1 Scts (1.2%).
Maintain HOLD, TP S$1.46. Our TP is revised to S$1.46 as we roll forward valuations. While prospective yields of c5.6-5.9% are attractive, the execution of CapitaGreen is key for a sustained rerating of the stock. Maintain HOLD, TP S$1.46.
Publish date: 21/10/13