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CapitaLand Commercial Trust - Maybank Kim Eng 2016-04-12: Fair Valuations for Fairest Office REIT

CapitaLand Commercial Trust - Maybank Kim Eng 2016-04-12: Fair Valuations for Fairest Office REIT CAPITALAND COMMERCIAL TRUST C61U.SI 

CapitaLand Commercial Trust (CCT SP) - Fair Valuations for Fairest Office REIT 


Raise TP on Lower Yield Target; Maintain HOLD 

  • We tighten our yield target for CCT by 75bps to 6.25% and raise our yield-based TP to SGD1.40 from SGD1.25. 
  • Our lower target reflects signs that interest rates will stay low for longer. 
  • Singapore’s office sector has just tipped over and we see rents falling into 2018. We doubt that office REITs will outperform. 
  • As we think CCT is better positioned than its peers, it is our preferred REIT in this sector. Maintain HOLD. 

Better Than The Rest in Office 

  • We continue to prefer CCT among office REITs as: 
    1. it has the lowest gearing in the sector, which should shield it the most if office rents head down faster than expected; 
    2. CCT’s DPU distribution is more reflective of the underlying performance of its properties, unlike its office peers whose DPUs are clouded by capital distribution; and 
    3. it has the smallest exposure to the financial sector. 
  • Employment growth in the banking, insurance and financial sector remains tepid, which could weigh on demand for office space. We believe CCT is less affected than its peers as the sector accounted for 33% of its income as of end-2015. 

Further Upside for DPU 

  • Two other developments could offer upside to our DPU: 
    1. its acquisition of the balance 60% of CapitaGreen that it does not own; and 
    2. the potential redevelopment of Golden Shoe Carpark. 
  • Actual upside will depend on the economics of any transactions.



Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-12
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.40 Up 1.25


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