CapitaCommercial Trust

CapitaCommercial Trust: 2Q14 results came in line with street expectations, as the commercial REIT posted distributable income of $64.1m (+7.6% y/y) and DPU of 2.18¢ (+5.3%), alongside revenue and NPI improvement of 3.2% and 3.5% to $65.8m and $52m respectively. The stable growth for CapitaCommercial Trust (CCT) was buoyed by a 3.4% rental reversion in its office spaces, savings from lower interest expenses and release of retained income distribution. Portfolio occupancy remained healthy at 99.4%, above market occupancy rate of 95.8%, while weighted average lease to expiry remained at 7.8 years. Gearing lowered 1.2ppts q/q to 28.8%, with average debt cost of 2.4% and term to maturity of 4 years. Assuming a leverage target of 40%, the trust has more than ample debt headroom of $1.3b for investment opportunities. Management cites that Office leasing activities are expected to remain healthy, supported by the tight supply in the core CBD market till 1H16 and brisk leasing activities, supporting further rental growth. CCT's asset enhancement works at Raffles City Tower has completed as scheduled in 2Q14, resulting in a ROI of 9.3%, higher than the target ROI of 8.6%. In addition, its 40%-owned CapitaGreen is on track for completion by end-2014, and has secured 23% of net lettable area of 700,000 sf. At $1.665, CCT trades at 1x P/B and 1H14 annualized yield of 5.1%, not as attractive compared to other office REIT peers' average of 0.9x P/B and 6.2% forward yield. Latest broker ratings: OCBC maintains Hold rating with TP of $1.67 (under review)