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Simons Trading Research

Author: simonsg   |   Latest post: Fri, 21 Sep 2018, 04:14 PM

 

CapitaLand Commercial Trust - HSBC Extends Lease for Only One Year

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  • HSBC has signed a one-year extension at 21 Collyer Quay.
  • Renewal rents are 36% higher; one-year extension indicates HSBC's intention to vacate in 2020.
  • But ample time for CCT to backfill the space or maximise value through redevelopment or disposal of the property.
  • Maintain BUY, Target Price of S$2.12.

What’s New

CapitaLand Commercial Trust (CCT) announced that it has signed a one-year lease extension with HSBC for the whole of 21 Collyer Quay. The original lease with HSBC was scheduled to expire in April next year.

  • Under the one-year extension agreement, HSBC will pay a rent of S$27.7m or equivalent to S$11.54 psf/mth (triple net basis) commencing from 30 April 2019 vestors.io JV) and Funan (CapitaLand Mall Trust (SGX:C38U)), all of which could accommodate its space requirements and are scheduled to be completed over 2019/2020.
  • This news is a disappointment as we had originally assumed that HSBC would extend its lease for a longer period although the rent for the one-year extension is higher than the S$10 psf/mth rent we had projected upon renewal by HSBC.
  • Nevertheless, should CCT decide to continue owning the building, it has another two years to find a replacement tenant, which is ample time.
  • Alternatively, given the higher demand for office buildings in Singapore with recent transactions at “tight” yields, there is potential for CCT to sell the building above book value to demonstrate the conservative valuation of its buildings and why it deserves to trade at a premium to book as implied by our Target Price.
  • For now, we maintain our BUY call and Target Price of S$2.12, pending finalisation of CCT’s plans for 21 Collyer Quay.

Source: DBS Research - 13 Sep 2018

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