SINGAPORE (Oct 25): UOB KayHian is maintaining its recommendations on CapitaLand Commercial Trust and CapitaLand Mall Trust after their quarterly results announcement.
For CCT, the research house has stuck to its "buy" call with a target price of $1.90.
CCT posted a 2.6% rise in its 3Q17 DPU to 2.36 cents from 2.30 cents a year ago on lower operating expenses, stronger performance from CapitaGreen as well as a one-off gain.
However, gross revenue in 3Q17 fell 0.4% to $74.1 million from $74.4 million last year, due to the absence of income following CCT’s divestments of its 50% stake in One George Street as well as its divestments of Golden Shoe Car Park and Wilkie Edge.
See: CapitaLand Commercial Trust posts 2.6% rise in 3Q DPU to 2.36 cents
In a Monday report, analyst Vikrant Pandey says that CCT’s acquisition of Asia Square Tower 2 (AST2) will extend its footprint into the New Downtown Marina Bay area, while increasing its exposure to Grade A assets to 69.9%.
This acquisition will also improve the trust’s tenant diversification at the portfolio level and improve asset diversification such that the maximum NPI contribution by any single property will decrease from 27% to 23%).
In addition, Grade A CBD core rents have increased with rentals rising 1.7% q-o-q to $9.10 psf pm for the first time in 10 quarters, according to CBRE.
Pandey sees a near-term positive outlook for CCT as landlords of higher quality buildings are expecting higher rents, on the back of stronger economic fundamentals and demand-supply dynamics.
The continued flight to quality has led to Marina One and UIC Building reaching pre-commitments of about 70%. The new demand is mostly coming from the co-working and technology, amid tightening availability of quality space with new supply in core CBD remaining meagre at 0.81m sf per annum beyond 2017.
As for CMT, UOB is maintaining its "hold" call with a target price of $2.04.
CMT posted 3Q17 DPU of 2.78 cents, unchanged from 3Q16.
Gross revenue declined 0.2% to $169.4 million from $169.7 million in 3Q16, mainly due to lower rental achieved for Bedok Mall, Plaza Singapura and Junction 8.
See: CapitaLand Mall Trust's 3Q DPU holds steady at 2.78 cents
The trust reported a negative rental reversion of 1.7% in 9M17, attributed to Westgate (-10.5%), Bedok Mall (-6.0%), Tampines Mall (-4.3%) and Raffles City (-1.5%).
The management believes when Century Square re-opens, footfall will return to the Tampines Mall and Century Square cluster, given their wider selection overall, while it is also working on Bedok Mall to increase its operating hours, by bringing in new F&B concepts and relevant operators.
Moreover, shopper traffic and occupancy for the trust’s assets remained positive.
“Average prime retail rents islandwide stabilised at $24.75psf/mth, amid the challenging retail environment with landlords becoming more flexible in providing concessions to entice new tenants and less selective in tenant profile,” says Pandey.
The analyst believes that downward pressure on retail rents is likely to continue in 2017/18 with a further 0.60m sf and 1.62m sf of new supply coming onstream in 4Q17 and 2018 respectively. These could be partially offset if improvements in retail sales, tourist arrivals and receipts persist.
Despite the weak retail rental environment, management is also revamping some of its malls.
Furthermore, CMT has divested the service resident component of Funan at a land value of $90.5 million and other assets worth $11.3 million to Ascott. This will help the trust generate proceeds to help pare down debt.
See: Ascott to invest $170 mil in Funan’s co-living component
As at 3.09pm, units in CCT and CMT are trading at $1.68 and $2.03 respectively.
