STI : 3,100.24
Price Target : 12-Month S$ 1.52 (Prev S$ 1.46)
Uptick in expectations
•4Q13 results in line
•Uptick in operational performance and outlook
•Maintain HOLD, revised TP S$1.52
4Q13 results in line. CapitaCommercial Trust (CCT) reported gross revenue and net property income of S$98.6m (1.5% y-o-y). The uptick in rental income mainly came from Six Battery Road, which completed its Asset Enhancement Initiatives (AEI) in Dec’13 (S$3.8m, +31%),
while its other office buildings saw higher occupancies and rents (Capital Tower, Raffles City, Wilkie Edge). The higher performance more than offset the income vacuum due to the cessation of income support from One George Street. Net property income came in 1.3% lower y-o-y at S$74.2m due to higher property expenses and taxes. As a result, distributable income to unitholders of S$60.2m (DPU of 2.09 Scts) was 3.3% higher y-o-y, boosted by lower interest expenses upon the expiry of 3.5% interest rate swaps in March’13.
Stable valuations, conservative gearing. The portfolio valuation was written up by 3.1% y-o-y (1.7% from Jun’13), supported by higher rents achieved portfolio-wide. Cap rates remain stable at 3.75% for its Grade A offices, while staying static at 4.25%-5.55% for the other properties.
Uptick in operational performance and outlook. Committed portfolio occupancy ticked up to 98.7% due to improved occupancies at Capital Tower and Six Battery Road. The average office rent for the portfolio increased slightly by 1.3% q-o-q to S$8.13/mth. The Trust signed new leases and renewals of close to 141 k sqft in 3Q13 (c.1m sqft in 2013), of which 33% were new leases, with demand coming from a wide variety of trade sectors (legal, real estate, business consultancy, insurance and energy). Looking ahead, the manager has renewed half of the leases expiring in 2014, while the remaining will expire in 2H14 at an average rate of S$10.30. The manager is confident of achieving positive rental reversions in view of an improving demand for office space.
CapitaGreen update. The manager is understood to be in talks with prospects for up to 350k (or half of the property’s NLA) but has yet to sign on any new tenants at the moment. Given the lack of new office completions in 2014, the manager remains optimistic on the future take-up and maintains its rent target of between S$12-14psf.
Maintain HOLD, TP revised to S$1.52. We have raised our estimates slightly to account for higher portfolio occupancies and rents achieved and thus our TP. While prospective yields of c.5.6-5.8% are attractive, the execution of CapitaGreen is key for a sustained re-rating of the stock. Maintain HOLD, TP S$1.52.
Publish date: 24/01/14