Capitacommercial Trust's DPU to fall flat over FY13-14

But it's expected to pick up in 2015.

According to CIMB, it expects Capitacommercial Trust's DPU to be flat over FY13-14 as a fall-off in yield support and downtime from backfilling may offset positive rental reversions and interest cost-savings; before picking up in FY15 when contributions from a completed 60% stake in CapitaGreen kick in.

Here's more:

With a more transparent lease structure (limited income support), more typical 3-year leases and room for upside from space vacated by departing tenants at CapitaGreen, CCT could be the best-positioned to capture a turnaround of the office sector, in our view.

We lower our FY13-15 DPUs by 1-2%, factoring in dilution from recent convertible-bond conversion. Our DDM-based target price dips on a higher discount rate of 7.9% (previously 7.3%) for a sector-wide adjustment. Nevertheless, upgrade to Neutral from Underperform as we believe negatives have been largely priced in.

Asset leverage of 30.4% is among the lowest in the sector, while debt maturity is fairly well-staggered (apart from some chunkier maturities in FY15-16).

Some 78% of its borrowings has been hedged as fixed-rate debt (after the expiry of an expensive interest-rate swap), which is still above the 60+% typical of other office REITs. With these, we believe CCT is fairly immune to potential rate hikes and estimate a 1% impact on DPU from a 50bp increase in cost of borrowing.

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