• 1Q18 DPU fell 11.7% YoY
• Rental reversions largely positive
• Exploring overseas markets

1Q18 Results Within Our Expectations

CapitaLand Commercial Trust’s (CCT) 1Q18 results came in within our expectations. Gross revenue and NPI jumped 7.7% and 10.5% YoY to S$96.4m and S$77.2m, respectively. The latter formed 25.5% of our FY18 forecast. Growth was underpinned largely by a full-quarter contribution from the acquisition of Asia Square Tower 2 (AST2) and organic growth from CapitaGreen, but partially offset by divestments.

DPU dipped 11.7% YoY to 2.12 S cents as a result of an enlarged unit base arising from a rights issue exercise and conversion of convertible bonds in FY17. This accounted for 23.9% of our FY18 forecast.

Office Rentals Recovering Firmly

Encouragingly, CCT highlighted that it managed to secure committed rents largely above its expiring rents in 1Q18. Committed rents per sf per month at AST2, Six Battery Road and One George Street were S$11.00-S$13.90, S$12.00- S$13.00 and S$9.50-S$11.40, versus average expired rents of S$11.77, S$12.22 and S$9.50, respectively. This was in-line with the continued office market recovery, as core Grade A CBD office rents rose 3.2% QoQ to S$9.70 psf/month in 1Q18 following the 3.3% sequential increase in 4Q17, based on CBRE data.

Meanwhile, CCT said it has received confirmation form the Singapore authorities that it will be taking back Bugis Village (contributed 2.2% of CCT’s 1Q18 NPI) on 1 Apr 2019. CCT will receive compensation of S$6.6m plus accrued interest compounded from 1989. Although the total compensation was not disclosed, it would likely come in below the property’s S$44m valuation as at 31 Dec 2017.

Next Phase of Growth Could Come From Overseas

CCT highlighted in its results announcement that although Singapore will remain as its predominant market, it is also exploring inorganic growth opportunities in select global cities in developed markets. This is because there are limited acquisition opportunities in Singapore.

We believe potential markets include Australia, Western Europe and Japan. Overseas properties could constitute 10%-20% of CCT’s total deposited properties over the long run. We retain our forecasts and S$1.84 fair value estimate.

Source: OCBC Research - 25 Apr 2018