• 3Q19 DPU unchanged YoY
• Robust leasing momentum
• Higher pre-commitments at CapitaSpring

3Q19 Results Within Our Expectations

CapitaLand Commercial Trust (CCT) announced its 3Q19 results which met our expectations. Gross revenue and NPI grew 3.3% and 0.9% YoY to S$103.8m and S$81.1m, respectively. DPU came in flat YoY and QoQ at 2.20 S cents. For 9M19, CCT’s NPI increased by 1.7% to S$239.3m, while DPU was up 1.9% to 6.60 S cents and this formed 74.5% of our full-year forecast.

A Strong Leasing Quarter With Robust Rental Reversions…

Rental reversions came in strong once again in 3Q19, continuing the momentum from the previous quarter. Committed rents (psf/month basis) at Asia Square Tower 2 (AST2), Six Battery Road (6BR), One George Street (OGS) and Capital Tower were S$12.50-S$13.00, S$11.95-S$12.80, S$10.20-S$10.50 and S$10.30-S$11.00, versus average expired rents of S$10.35, S$11.79, S$9.13 and S$8.16, respectively.

For Raffles City Tower, committed rents (S$9.20- 11.20) also compared favourably to the average expired rent of S$9.32. CCT also highlighted that it has secured two new signings at CapitaSpring, thus bringing the property’s committed occupancy to 31%. One of the tenants is co-working operator The Work Project (TWPC), an associate of CapitaLand, who will take up one floor totalling 22k sq ft. The lease will commence from Sep 2021 to Aug 2028, with rent payable estimated to be ~S$22.7m for the entire lease term.

Based on our calculations, this translates into a decent rental rate of S$12.28 psf/month. Following this lease, we estimate that co-working operators would form ~7-8% of CCT’s overall Singapore portfolio NLA. Portfolio occupancy of 97.6% was down 1.0 ppt QoQ, due largely to AST2 (-1.8 ppt to 94.0%) and the addition of the recently acquired Main Airport Center in Frankfurt (committed occupancy of 93.1%), but partially offset by an increase at OGS and 6BR. The higher vacancy at AST2 was the result of an early surrender of lease by a tenant, which led to a oneoff compensation sum of S$2.1m.

…but Outlook More Cautious

Notwithstanding the strong leasing momentum seen over the past few quarters, we believe the overall Singapore office market has softened, with corporates becoming more cautious. Coupled with increasing concerns on the outlook of the coworking space, CCT’s share price has corresponding declined 11.3% from its YTD peak in Jul (as at 23 Oct close).

We maintain our fair value estimate of S$1.92 on CCT. HOLD.

Source: OCBC Research - 24 Oct 2019