• Results within expectations
• CapGreen now 76.4% committed
• Upgrade to HOLD on valuation

1Q15 numbers broadly in line

CapitaCommercial Trust (CCT) reported 1Q15 distributable income and net property income of S$62.8m and S$54.0m which increased 4.7% and 6.4% YoY, respectively. Distribution per unit for the quarter is announced to be an estimated 2.12 S-cents, up 3.9% YoY versus 2.04 S-cents for 1Q14. We judge this set of results to be within expectations, as distributable income and net property income from the quarter forms 24.2% and 23.7% of our full year forecast, respectively. In terms of the topline, the trust’s 1Q15 revenues similarly increased 6.5% YoY to S$68.2m mostly due to higher rentals and occupancy rates across its office portfolio.

Portfolio rentals holding firm

Management reported continued positive rental reversion trends for its Grade A office leases committed over the quarter, and average portfolio rental increased 2.0% QoQ to S$8.78 psf, with 6 Battery Rd and One George St achieving monthly rents between S$11.00 psf to S$14.60 psf, and CapitaGreen between S$12.00 to S$16.00 psf. Including the newly completed CapitaGreen, the trust reports a healthy overall occupancy rate of 97.0%. As at end 1Q15, CapitaGreen was 76.4% committed, up from 69.3% from at last quarter, and we understand management targets to achieve full occupancy by the end of the fiscal year.

Upgrade to HOLD on valuation grounds

CCT’s balance sheet remain healthy with gearing at 29.9% as at end 1Q15 and an average cost of debt of 2.4%. We note that the trust has a debt headroom of S$1.2b assuming a 40% gearing, and is holding a call option to buy the 60% remaining interest in CapitaGreen from 2015-17. Our fair value estimate of CCT remains unchanged at S$1.67. Since we downgraded the counter to a Sell rating on 22 Jan 2015, the share price has fallen 8.2% and we now upgrade to HOLD on valuation grounds.

Source: OCBC Research - 23 Apr 2015