CapitaLand Commercial Trust (CCT) announced its 2Q19 results this morning which met our expectations. Gross revenue and NPI grew 3.0% and 0.8% YoY to S$101.0m and S$78.4m, respectively. DPU rose 1.9% to 2.20 S cents.

For 1H19, CCT’s NPI increased by 2.1% to S$158.2m, while DPU was up 2.8% to 4.40 S cents and this formed 48.2% of our full-year forecast. Rental reversions came in strong in 2Q19. Committed rents (psf/month basis) at Asia Square Tower 2, Six Battery Road, One George Street and CapitaGreen were S$11.87-S$13.50, S$12.90- S$13.20, S$9.50-S$10.80 and S$12.00-S$13.30, versus average expired rents of S$10.58, S$11.70, S$9.10 and S$11.62, respectively.

Separately, CCT also announced that it has secured Wework Singapore Pte Ltd as a new tenant for its 21 Collyer Quay property. The lease will commence from early 2Q21 for a tenure of seven years. This lifts the overhang on the property as the HSBC lease will be expiring in Apr 2020.

There will be some downtime as CCT will close the entire building for upgrading works from 2Q20 to 4Q20 at an estimated cost of S$45m and targeted ~9% return on investment.

CCT also proposed to acquire an effective 94.9% interest in Main Airport Center (MAC), a freehold office property in Frankfurt, from its sponsor CapitaLand. The proposed transaction is based on an agreed property value of EUR265.0m (~S$407.8m) and an estimated initial NPI yield of 4.0%. CCT intends to make this acquisition DPU accretive.

Pending an analyst briefing, we currently have a SELL rating and S$1.88 fair value on CCT.

Source: OCBC Research - 17 Jul 2019