SINGAPORE (Oct 20): Maybank Kim Eng is maintaining its “buy” call on CapitaLand Commercial Trust with a target price of $1.77, advising investors to look beyond potential DPU dilution and focus on value creation from the redevelopment of Golden Shoe Carpark and active management of Asia Square Tower 2.
In a Friday report, analyst Derrick Heng expects active asset management of AST2 to offset negatives from the slight DPU dilution from this acquisition given CCT will be acquiring the property at a discount to comparable properties in the vicinity and its estimated replacement cost of a new office building in the CBD.
Successful redevelopment of GSCP will also crystallise 2.9 cents of development surplus when completed in 2021, adds Heng.
“We build in the impending acquisition of AST2 and its recent rights issue. This lowers our FY18-19 DPU of 2%. We roll forward our valuation basis and trim our target price to $1.77, based on an unchanged target yield of 5.0%,” says Heng.
CCT’s 3Q17 results this morning was in line with Maybank’s forecasts. DPU rose 2.6% y-o-y to 2.36 cents. Management offset the loss of income from the recent divestments with $3.3 million of distributions from their sale. This also helped mitigate the enlarged share base from the recent bond conversions. Looking ahead, Heng says management could continue to support its distributions with divestment gains and other tax-exempt income on its books.
See: CapitaLand Commercial Trust posts 2.6% rise in 3Q DPU to 2.36 cents
Portfolio occupancy rose 0.9 percentage points to 98.5% with strong occupancy across the board.
“While the office market has reached a turning point, we expect negative rental reversions to persist in the near term as expiring rents remain higher than what’s achievable in the market today. However with 10%/33% of office space due for renewal in 2018/19, a stronger-than-expected market recovery could present upside to income,” says Heng.
Units of CCT are trading at $1.66 with a DPU yield of 5.5% for FY17.
