SINGAPORE (Jan 25): RHB Research is maintaining a “neutral” call on CapitaLand Commercial Trust (CCT) with a target price of $1.86.
CCT yesterday announced that its 4Q18 DPU has increased by 6.7% to 2.22 cents from 2.08 cents in 4Q17. FY18 DPU was just 0.5% higher at 8.70 cents from 8.66 cents in FY17.
Gross revenue came in at $99.0 million, a 14.8% increase from $86.3 million last year, mainly due to contributions from Asia Square Tower 2 (AST2) and Gallileo. Net property income came in at $79.3 million, 16.6% higher than $68.0 million a year ago.
See: CapitaLand Commercial Trust posts 6.7% increase in 4Q DPU to 2.22 cents
Based on CBRE preliminary data, Grade-A office rents rose 15% y-o-y in 2018 to $10.80 psf.
In a Friday report, analyst Vijay Nararajan says, “With limited Grade-A supply in the pipeline (c.1.1m sqft), we expect Grade-A rents to rise 5-10% in 2019. The favourable outlook would benefit CCT which has about 15% of leases (as % of rental income) due for renewal this year. With average expiring rents of these leases already 4% below current market rents, we expect a healthy positive reversion of 5-15% for 2019.”
CCT’s management said that it is considering refurbishing 21 Collyer Quay (21CQ), with a view of re-leasing the entire space. CCT plans for the refurbishment works to achieve a minimum downtime.
Currently, HSBC is the sole tenant of the building and has extended its lease until April 2020.
“With office rental expected on an uptrend until 2021, we believe such a move will be favourable to unit holders,” says Natarajan.
Meanwhile, leasing works are commencing at CapitaSpring, as construction works are on track to complete by 1H21.
As of now, JP Morgan signed up to be the anchor tenant for office space taking up c.24% of the NLA. Management plans to open a show suite on the site and commence leasing for the remaining space.
“We see more upside to its targeted yield on cost of 5% if the office rental momentum continues,” adds Natarajan.
As for mergers and acquisitions, CCT’s management says that it prefers gateway cities in Germany for its sound fundamentals, but it is unlikely that overseas assets will exceed 20% of its portfolio.
The analyst also reckons that the trust may exercise its call option to acquire the remaining 55% stake in CapitaSpring closer to its completion.
“Despite a positive outlook, a 1.0 times FY19 P/B valuation and FY19 yield of 5.0% are not compelling in our view so we would recommend investors to buy on dips,” says Natarajan.
As at 4.05pm, units in CCT are trading at 2.16% higher at $1.89.
