SINGAPORE (April 20): RHB has downgraded its call on CapitaLand Commercial Trust (CCT) from “buy” to “take profit”, recommending investors to lock in profits and re-enter at lower levels now that the units of the trust are currently hovering close to the research house’s target price of S$1.68, which remains unchanged.

In a Thursday report, analyst Vijay Natarajan notes that the unit price of CCT has outperformed the Straits Times Index and SGX S-REIT Index by 9% and 8% respectively, and says he believes the recent run-up in its unit price has already factored in most of the positives arising from the potential redevelopment of Golden Shoe Car Park (GSCP).

With CCT having recently obtained provisional permission for the carpark’s redevelopment, the trust is currently awaiting for the assessment of the differential premium payable to complete the feasibility study of the development, which Natarajan expects to be completed within the next 1-2 quarters.

“GSCP is likely to add ~1 million sq ft of commercial gross floor area (GFA) in Singapore’s central business district (CBD) when fully redeveloped. Management is currently evaluating various funding options, which includes a potential sale of assets and JV structures to mitigate fund raising concerns,” says the analyst.

Highlighting that the office rental decline is currently slowing down while pre-commitment levels for future supply remain “relatively healthy”, he forecasts rents to bottom up this year before rebounding only in 2018.

Natarajan is also expecting at least a partial conversion of CCT’s S$175 million (RM551 million) of convertible bonds, which are due for refinancing this September, as the conversion price of S$1.4265 ex-dividend is well below current unit price levels.

“Our forecasts have already factored in the impact assuming full conversion into equity. A full conversion of convertible bonds would also lower gearing levels to 36.1% from 38.1%,” he concludes.

As at 11am, units of CCT are trading flat at S$1.63. —

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