• Full year DPU of 8.62 cents
• Proactive lease management
• Grade A rents downtrend to persist

4Q15 earnings within expectations

CapitaLand Commercial Trust (CCT) reported 4Q15 distributable income and net property income of S$64.1m and S$52.3m which increased 0.8% and 3.2% YoY, respectively. Distribution per unit (DPU) for the year rose 1.9% YoY to an estimated 8.62 S-cents.

In terms of the topline, the trust’s 4Q15 revenues increased 1.9% YoY to S$67.6m mostly due to higher rents and portfolio occupancy. We judge this set of results to be within expectations, as FY15 distributable income and net property income forms 104.0% and 99.3% of our full year forecast, respectively.

Proactive management of portfolio leasing profile

The trust reported an uptick in overall occupancy rates, which increased QoQ from 96.4% to 97.1% as the occupancy at CapitaGreen rose to 91.3%. Capital Tower’s committed occupancy was 94.1% as at end FY15 and we understand that discussions are in progress for the remaining space at the asset.

In addition, 25% of the total space to be vacated by RBS at One George Street has been pre-leased. While monthly average rents of CCT’s portfolio ticked up QoQ from S$8.89 psf to S$8.90 psf, we continue to see limited scope for meaningful rental reversions ahead due to a weak outlook for Grade A office rents, which fell 7.1% in 2015 and forecasted to dip 10% in 2016.

Balance sheet remains healthy with ample debt headroom

In anticipation of a large 4.3m sq ft of office space supply coming through the pipeline in 2016, CCT is proactively managing the lease expiry profile of its portfolio. Only 15% of the trust’s total office net lettable area is expiring in 2016, and management has already renewed one-third of this space.

The trust’s balance sheet remains healthy with a relatively low gearing of 29.5%; with a debt headroom of S$1.3b (assuming a 40% gearing), CCT has the financial flexibility to execute on growth opportunities. Maintain HOLD with an unchanged fair value estimate of S$1.39.

Source: OCBC Research - 21 Jan 2016