• CapitaLand Commercial Trust declared 2Q DPU of 1.69 Scts; its 1HFY20 DPU of 3.34 Scts makes up 43.5% of our FY20F forecast.
• Stable portfolio occupancy maintained; renewals were mainly positive in 2Q.
• Reiterate ADD, with an unchanged DDM-based Target Price of S$1.98

CapitaLand Commercial Trust's 2Q20 Results Summary

• CapitaLand Commercial Trust (SGX:C61U) reported 2Q20 gross revenue/NPI of S$92.8m/S$70.8m, down 8.1%/2.5% y-o-y, dragged by lower Singapore property occupancies, rental waivers to tenants, expiration of HSBC lease at 21 Collyer Quay, lower contribution from its 60% stake in RCS Trust, as well as payment of management fees in cash.
• Distributable income of S$65.6m (-20.4% y-o-y) translates into DPU of 1.69 Scts. 1H20 DPU of 3.34 Scts makes up 43.5% of our FY20F forecast.
• CapitaLand Commercial Trust revalued down its portfolio by 1.7% in 1H20, translating into an adjusted book NAV of S$1.76/unit.

Steady Portfolio Committed Occupancy Q-o-q

• Committed portfolio occupancy stands unchanged q-o-q at 95.2% at end-2Q. CapitaLand Commercial Trust signed leases for 176k sq ft of space in 2Q (largely renewal demand), with positive rental reversion for most of them. It has a remaining 8% of office leases to be renewed in 2HFY20 and a further 25% in FY21.
• With expiring rents averaging S$9.08-10.95 psf in 2HFY20-21F, we think it could continue to enjoy positive rental reversion, although at a more modest spread.
• CapitaLand Commercial Trust has committed S$25.8m, inclusive of property tax rebates, to support its tenants affected by the Covid-19 disruptions. It extended rent waivers for Apr-Jun (inclusive of property tax rebates and government cash grants) to its retail tenants, passed on property tax rebates and waived gross turnover rent (GTO) for Apr, and deferred base rent payment till Sep 2020 for its hotel tenant, with repayments starting from Jan 2021.

Robust Balance Sheet; 2020F Debt Refinancing Completed

• CapitaLand Commercial Trust's aggregate leverage stood at 36.4% at end-2Q20, with a healthy interest coverage ratio of 5.3x. CapitaLand Commercial Trust remains committed to undertake proactive asset management and leasing to drive medium-term organic growth.
• 6 Battery Rd has been partially closed since Jan as it goes through a S$35m asset enhancement initiative (AEI); however, management indicated that phasing of works may be delayed. 21 Collyer Quay is completely closed from May for refurbishment. The group targets to achieve an 8-9% return on investment on these initiatives, to be completed in 2021.

Reiterate ADD Rating for CapitaLand Commercial Trust

• We leave our FY20-22F DPU estimates unchanged post-results. We reiterate our ADD rating, with a DDM-based Target Price of $1.98.
• Potential re-rating catalyst: faster-than-expected leasing demand recovery.
• Downside risk: protracted economic recovery that will dampen demand for office space.

Source: CGS-CIMB Research - 23 Jul 2020