SINGAPORE (July 13): Maybank Kim Eng continues to keep its “buy” rating on CapitaLand Commercial Trust (CCT) with a target price of $1.81 as the redevelopment of Golden Shoe Carpark should position the group for a rebound in Singapore’s office market in 2021.
Golden Shoe Carpark is set to be redeveloped into an integrated development which includes offices, ancillary retail space, serviced apartments and a food centre to cater to the CBD lunch crowd.
See: CapitaLand-led JV in $1.8 bil redevelopment of Golden Shoe Car Park
The redevelopment project will cost $1.82 billion, with 61.5% related to land expenses.
In a Thursday report, analyst Derrick Heng says, “Our preliminary estimates suggest a development surplus of 2.9 cents for CCT’s 45% stake.”
Heng believes that with a conservative pro-forma aggregate leverage of 35% before the divestment of Wilkie Edge, CCT still has sufficient capacity to acquire another property to fill its income void during the redevelopment.
Even after adjusting Golden Shoe’s shorter land tenure of 64 years, the implied land cost at $1,113 psf GFA is still lower than a fresh site.
CCT has been given the option to acquire the commercial component from its JV partners – subject to at least 6.3% minimum return for them – and drag-along rights over Mitsubishi Estate’s (MEC’s) stake in the serviced apartments within five years of TOP.
The group’s management is targeting a yield-on-cost of about 5%, which led Heng to assume $12-14 psf of office rents and $255-270 RevPar for the serviced apartments.
“Our $2.14 billion GDV estimates, based on $2,760 psf for offices, $2,800 psf for retail and $1.2 million/key for serviced apartments, are more conservative, implying 4.7%. We think this still offers a decent buffer for the $1.82 billion development cost,” says Heng.
Heng expects a rebound in office rents to be a catalyst to the call, while risks include a protracted office-market downturn and cost overruns in redevelopment projects.
Units of CCT are trading 2 cents higher at $1.67 as of 3.32pm.
