The Positives
+ c.10% of lease expiries for the year remain, 60% of FY20’s expiries committed. CCT signed approx. 303K sqft of leases in 1Q20 with positive reversions ranging 0% to 31%. 22% of leases signed were new leases with demand coming from Financial Services, Legal Energy, Commodities, Maritime and Logistic sectors. With weaker economic sentiments, leasing demand is expected to be muted, with more renewals than new leases expected.
The Negatives
– Portfolio occupancy fell from 98.0% to 95.2%. This was largely attributed to lower occupancy at Six Battery Road (-20.2ppts from 98.7% to 78.5%) due to AEIs following the anchor tenant’s (Standard Charted) downsizing upon lease expiry in January 2020. Occupancy at Raffles City Tower also fell by 5ppts QoQ from 97.2% to 92.2%.
Outlook
CCT will be passing on property tax rebates at the respective rates to all their tenants; Retail and F&B tenants (mostly under RCS) will be receiving approximately 2 months of rental rebates (property tax rebate inclusive). RCS will waive turnover rent for the hotel operators for the month of April (variable rent accounted for 22% of rents from hotels operators in FY19).
Two properties will be undergoing AEIs in FY20 – partial closure of Six Battery Road after and full closure of 21 Collyer Quay after the end of HSBC’s lease in April 2020. Capex costs expected to be $35mn and $45mn respectively.
Upgrade to ACCUMULATE with lower TP of S$1.74 (prev. $2.18).
We lower our FY20e/21e forecasts to factor in lower occupancy from weaker demand in the near-term and the lower revenue from RCS due to the tenant support initiatives. FY20e/21e DPU was lowered by 15.0% and 10.9% respectively. Our cost of equity is raised from 6.34% to 7.25% after raising our beta by 13bps and lowering our terminal growth assumption from 1.85% to 1.6% to factor in the increased market risk and weaker leasing demand.
