The golden shoe fits for CapitaLand Commercial Trust

SINGAPORE (Jan 19): CapitaLand Commercial Trust is making tracks in the Singapore office REITs sector in spite of headwinds in the market.

CCT on Wednesday posted a distribution per unit (DPU) of 2.39 Singapore cents for 4Q16 – 10.1% higher than 4Q15 DPU of 2.17 Singapore cents.

For FY16, CCT’s DPU increased by 5.3% to 9.081 Singapore cents from 8.62 Singapore cents a year ago.

And analysts expect CCT to stay on the right track and continue its outperformance.

“There was little surprise in FY16 results, with DPU at 103% of our forecast. Underlying performance was stable in a difficult market,” says Maybank Kim Eng analyst Derrick Heng in a Wednesday report.

Heng adds that CCT is likely to enjoy stable DPU over the next three years, and could be lifted by an expected rebound in office rents in 2018.

Maybank is maintaining its “buy” recommendation on CCT with an unchanged target price of S$1.81.

“We expect little impact to CCT from near-term negative headwinds facing the office sector due to high office occupancy levels and minimal leases expiring this year,” says RHB analyst Vijay Natarajan in a Thursday report.

RHB is keeping its “buy” call on CCT with an unchanged target price of S$1.68.

Both Maybank and RHB point to CCT as a top pick in the Singapore office REIT sector.

According to Nataranjan, CCT’s management “positively expects” to receive authority approvals and kick off its redevelopment of Golden Shoe Car Park by Aug 2017.

With plans including a 280-metre-tall Grade A office tower, the GSCP redevelopment could potentially create a commercial gross floor area of about 1 million sq ft when it is completed in 2021.

Natarajan notes that RHB’s current recommendation has not factored in any potential upside from the redevelopment.

“The stock is currently trading at an attractive 0.9x FY17F P/BV,” says Natarajan. At current share price levels, he says this translates to FY17F/FY18F yields of 5.8% .

In addition, Maybank’s Heng believes there is a “large mismatch” between the value of CCT’s office assets, as implied by its current share price, and valuations in the private market.

“Current stock price implies S$1,860 psf and a cap rate of 4.8% for its office assets in Singapore. These are cheap against the replacement cost of a new office building and recent transactions in the physical market.” says Heng.

As at 12.38pm, CapitaLand Commercial Trust is trading half a Singapore cent higher at S$1.57. — theedgemarkets.com