CapitaLand Commercial Trust - Ang bao from CapitaGreen
- CapitaLand Commercial Trust (CCT)'s 4Q16 DPU was 10% y-o-y higher, slightly above expectations.
- Growth will continue to be driven by recent acquisition of remaining 60% stake in CapitaGreen.
- Disposal of Wilkie Edge above book value, and redevelopment of Golden Shoe are next catalysts.
Timely acquisition of CapitaGreen.
- Despite the expected decline in the office market, we believe the timely acquisition of the remaining 60% in CapitaGreen not only helps to offset potential negative rental reversions and lower occupancies for the rest of CapitaLand Commercial Trust (CCT)’s portfolio but will allow CCT to deliver 2% growth in DPU this year (excluding the impact from redevelopment of Golden Shoe and potential sale of Wilkie Edge).
- The boost is already visible by the 10% y-o-y increase in 4Q16 DPU.
Trading at a discount to physical office transactions.
- Investors have been concerned over the value of CCT’s portfolio which we believe is unwarranted. CCT’s Singapore Grade A office portfolio trades at an implied value of c.S$2,000 per square foot (psf) compared to recent sales of between S$2,700-S$3,500 psf.
- While CCT’s Grade A portfolio is unlikely to trade higher to c.S$2,700 given the older profile of some of its properties, we believe the current strength of the physical market and 999-year leasehold status of some of its buildings, warrants CCT to trade close to its book value of S$1.73 per unit or an implied valuation of S$2,100 psf. The next catalyst would be the sale of Wilkie Edge above book value.
Upside from redevelopment of Golden Shoe.
- CCT intends to redevelop its Golden Shoe Car Park property. Subject to obtaining the necessary approvals, CCT plans to build a commercial building with c.1m square feet (sqft) of space in terms of gross floor area (GFA), equivalent to c.20% uplift in attributable net lettable area (NLA).
- Upon completion in 2021, the property will enhance CCT’s NAV and earnings.
- Post the incorporation of the latest least expiry profile and expiring rental data, we trimmed our DCF-based TP slightly to S$1.69 from S$1.70.
Key Risks to Our View
- A key risk to our view is new office supply causing spot rents to fall below S$7 psf, which is likely to lead to lower-than-expected asking rents and rental income.