CapitaLand Commercial Trust upgraded to Accumulate by Phillip Capital

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Phillip Capital upgraded CapitaLand Commercial Trust to Accumulate, calling the REIT “armed and equipped for interest rate hikes.”

“Lease renewal and interest rate refinancing risks have been largely reduced with only 5 percent of leases and zero debt expiring this year,” Phillip Capital said in a note on Wednesday, adding that meant the distribution per unit (DPU) outlook was stable as increased funding costs were its only major concern. It noted that only around 8 percent of total debt expires in 2019.

CapitaLand Commercial Trust posted net property income of S$77.21 million for the first quarter, up 10.5 percent on-year, and a distribution per unit (DPU) of 2.12 Singapore cents, down 11.7 percent on-year, management said in a filing to SGX on Tuesday. After adjusting for an enlarged total number of units, the DPU was up 7.6 percent on-year, the statement said.

Phillip Capital said that with minimal lease expiries left for this year, it expected 2019 expiries would benefit from forecast rent rises between now and then.

“We expect spot rents to continue growing over the next two years with the tapering of office supply and improving demand. We are thus less worried about the 31 percent of leases expiring in 2019 (by gross rental income) than those expiring this year,” it said.

Phillip Capital raised its target price to S$1.88 from S$1.80 after raising its 2019 DPU forecast by 3 percent.

The unit ended Wednesday down 1.11 percent at S$1.78.