SINGAPORE (March 8): DBS is maintaining its “buy” recommendation for CapitaLand Commercial Trust, thanks to the timely acquisition of the remaining 60% stake in CapitaGreen.
Despite the expected decline in the office market, DBS says the purchase not only helps CCT offset potential negative rental reversions and lower occupancies for the rest of its portfolio but enables it to deliver 2% growth in DPU this year.
In a Wednesday report, DBS analyst Mervin Song says investors have been unduly concerned over the value of CCT’s portfolio.
Currently, CCT’s Singapore Grade A office portfolio trades at an implied value of $2,000 per square foot (psf) which is lower than to recent sales of between $2,700-$3,500 psf. Given the older profile of some of its properties, the portfolio is also unlikely to trade higher to $2,700.
However, Song says the current strength of the physical market and 999-year leasehold status of some of its buildings warrants the portfolio to trade closer to its book value of $1.73 per unit which implies a valuation of $2,100 psf.
The next catalyst would be the sale of Wilkie Edge above book value, adds Song.
Looking ahead, CCT intends to redevelop its Golden Shoe Car Park property into build a commercial building with 1 million sf of space in terms of gross floor area (GFA), equivalent to a 20% uplift in attributable net lettable area (NLA). Upon completion in 2021, the property will enhance CCT’s NAV and earnings.
“We maintain our DCF-based target price of $1.69. With 10% capital upside and 5.9-6.1% yield, we maintain our ‘buy’ call,” says Song.
Units of CCT are up 1 cent at $1.54.
