SINGAPORE (Sept 26): OCBC Investment Research is keeping its “hold” recommendation on CapitaLand Commercial Trust (CCT) with a lower fair value estimate of $1.65 from $1.69 previously.
This follows the trust’s announcement last week of its acquisition of Asia Square Tower 2 from BlackRock for a total of $2.15 billion, which the trust intends to fund via equity, debt, and its divestment proceeds from Golden Shoe Car Park, One George Street and Wilkie Edge.
See: CapitaLand Commercial Trust to buy Asia Square Tower 2 for $2.15 bil
The agreed property value of $2.1 billion translates to $2,689 per sq ft on net lettable area (NLA), and is expected to contribute an initial net property income (NPI) yield of 3.6% based on CCT’s committed occupancy rate of 88.7% as at end-June, notes lead analyst Andy Wong in a Tuesday report.
“We see potential upside to this NPI yield as we are confident that management would be able to ramp up the occupancy rate of the property amid a recovering office market,” comments Wong.
“This acquisition yield also compares favourably to the exit NPI yield achieved by CCT for One George Street (3.2%) and Wilkie Edge (3.4%),” he adds.
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In the analyst’s view, the hotel component of Asia Square Tower 2, which is excluded from CCT’s acquisition deal, is set to provide the trust a number of benefits.
This includes addition of a premium Grade A property with efficient floor plates at a strategic location; the diversification of the trust’s tenant base; and a reasonable agreed property value in relation to comparable Grade A office assets.
Wong emphasises that the rights issue would also impose an initial dilution to the distribution per unit (DPU) of CCT – although he sees room for DPU to be boosted once occupancy is ramped up at AST2, coupled with the potential to benefit from uplift in market spot rents in FY18.
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Following a change in analyst coverage, OCBC’s DPU forecasts for CCT in FY17 and FY18 have been adjusted by -9.1% and -9.2% respectively.
As at 11.38am, units in CCT are trading flat at $1.70, representing 12.1 times and 21.2 times FY17F and FY18F earnings, respectively.
