CapitaCommercial Trust (CCT) reported a distributable income of S$212.8m (DPU for 7.52 S-cents) down 3.7% YoY, and in line with our full year forecast of S$211.2m. Note that Grade A office market rents fell 0.5% over 4Q11 and we expect rental levels to continue softening over FY12. However, we continue to like CCT for its valuation (last traded price at ~27% discount to NAV), quality portfolio and strong execution by management. Maintain BUY with a lower fair value estimate of S$1.29, versus S$1.41 previously, to reflect lower capitalization rate assumptions.
Full year results within expectations. CapitaCommercial Trust (CCT) reported a distributable income of S$212.8m for FY11, down 3.7% YoY ,and in line with our full year forecast of S$211.2m. DPU for the full year is 7.52 S-cents. Topline came in at S$361.2m, again tracking closely to our expectations of S$362.7m. This was down 7.8% YoY mostly due to the sale of Robinson Point and StarHub Centre in 2010, the redevelopment of Market St Carpark in 2011.
Bracing for softer rentals ahead. Overall portfolio occupancy stayed flat at 97.2%, which we note is still higher than the industry average of 91.2%. CCT also recorded marginal fair value gains of S$132m across the portfolio, with the majority of revaluation gains from Raffles City, Capital Tower, Six Battery Rd and One George St. As widely anticipated, we saw an inflection point in office rentals over 4Q11 as Grade A office market rents declined by 0.5%. Looking ahead, we expect office rental levels to decline further in FY12; note however that only 7.9% of leases by portfolio gross rental income for CCT is due for renewal in FY12.
Strong execution from management. Asset enhancement initiatives (AEI) and the Market St.redevelopment continues to be on track. Demolition works for the Market St. building were completed in Dec11. For the AEI at Six Battery Rd, 100% of the upgraded space (93,700 sf) has been pre-committed and management will continue enhancements work at that building, timing them according to lease expiries. The occupancy rate at One George St. is currently 93.3%, with new tenants such as The Bank of Fukuoka and Ashmore Investment Management.
Maintain BUY. We continue to like CCT for its quality portfolio and strong execution by management, with the last traded price at ~27% discount to NAV. Maintain BUY with an lower fair value estimate of S$1.29, versus S$1.41 previously, to reflect lower capitalization rate assumptions.
Bracing for softer rentals ahead. Overall portfolio occupancy stayed flat at 97.2%, which we note is still higher than the industry average of 91.2%. CCT also recorded marginal fair value gains of S$132m across the portfolio, with the majority of revaluation gains from Raffles City, Capital Tower, Six Battery Rd and One George St. As widely anticipated, we saw an inflection point in office rentals over 4Q11 as Grade A office market rents declined by 0.5%. Looking ahead, we expect office rental levels to decline further in FY12; note however that only 7.9% of leases by portfolio gross rental income for CCT is due for renewal in FY12.
Strong execution from management. Asset enhancement initiatives (AEI) and the Market St.redevelopment continues to be on track. Demolition works for the Market St. building were completed in Dec11. For the AEI at Six Battery Rd, 100% of the upgraded space (93,700 sf) has been pre-committed and management will continue enhancements work at that building, timing them according to lease expiries. The occupancy rate at One George St. is currently 93.3%, with new tenants such as The Bank of Fukuoka and Ashmore Investment Management.
Maintain BUY. We continue to like CCT for its quality portfolio and strong execution by management, with the last traded price at ~27% discount to NAV. Maintain BUY with an lower fair value estimate of S$1.29, versus S$1.41 previously, to reflect lower capitalization rate assumptions.
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