SINGAPORE (July 20): UOB Kay Hian and DBS Vickers Securities are maintaining their “buy” calls on CapitaLand Commercial Trust (CCT) with the respective target price estimates of $1.90 and $1.85, post the announcement of the REIT’s 2Q results on Tuesday.
See: CapitaLand Commercial Trust declares 3.2% higher 2Q DPU of 2.27 cents
In a Thursday report, UOB analyst Vikrant Pandey says he likes the trust for its proactive leasing activities with leasing demand coming from diverse business sectors, although he notes continued pressure on office rents for both of CCT’s properties in 2Q.
In his opinion, with a resurgence in the Singapore economy, there could be a further compression in the office yield spread to the trust’s upcycle average yield spread of 2.3%, – reflecting a significant upside potential of 19%.
“Consensus has pegged target prices at a discount to CCT’s latest book value of c. $1.77. However, we believe this is unwarranted, given CCT has been able to demonstrate the conservative valuation of its properties, through the recent sale of three office buildings at 14- 39% premium to book,” note DBS analysts Mervin Song and Derek Tan in a separate report on Thursday.
“This understated valuation remains in such buildings as Capital Tower and 999-year leasehold HSBC Building, which are priced at $1,844 and $2,275 psf respectively, a discount to recent transactions of between $2,400-$2,700 for comparable buildings. Thus, in our view, CCT can trade at a premium to book,” they add.
Song and Tan, too, believe further catalysts are in sight for the trust, and this comes in the form of positive news flow – with regards to the expected sale of Asisa Square Tower 2 and Chevron House as well as the Beach Road land tender – to maintain the upward trajectory in CCT’s share price.
On the contrary, RHB continues to recommend that CCT investors “take profit” with an unchanged target price estimate of $1.68.
While RHB analyst Vijay Natarajan highlights that he is supportive of CCT’s recent divestment moves, believes it is also important to closely watch out for how the proceeds are redeployed.
“Despite [Singapore’s] office market showing signs of bottoming, we expect portfolio negative rent reversions to persist due to high average expiring rents… We also expect some near-term overhang from the conversion of convertible bonds to equity, with the share price currently trading at a hefty 19% premium to conversion price,” says Natarajan.
As at 10:36am, units of CCT are trading flat at $1.72.
