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Asia Square Tower 2 acquisition seen by analysts as mostly positive for CCT

By PC Lee

/ The Edge Singapore |

September 22, 2017 4:19 PM SGT

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SINGAPORE (Sept 22): CapitaLand Commercial Trust (CCT) is acquiring Asia Square Tower 2 in Marina Bay from US private equity giant BlackRock for $2.09 billion, or $2,689 psf.

It is the latest in recent blockbuster deals in Singapore's office market, and comes a little more than a year after BlackRock sold the larger Tower 1 to the Qatar Investment Authority for $3.4 billion, or $2,720 psf.

Here’s what brokerage and research houses are saying a day after the announcement.

Macquarie Research says CCT remains one of its top picks in the S-REIT sector, maintaining an “outperform” with a target price of $1.85.

With the sale of Wilkie Edge and a 50% stake in One George Street earlier this year, the Asia Square 2 acquisition will improve the quality of CCT’s portfolio, says Macquarie.

This is in line with its well-articulated portfolio reconstitution strategy.

“As Grade A rents have bottomed out, with no new supply until 2021, there is room to enhance the entry yield of 3.6%, in our view,” says lead analyst Tuck Yin Soong.

Maybank Kim Eng is maintaining a “buy” and $1.81 target price.

Analyst Derrick Heng sees the deal positively the target is a high quality asset which is sold at a discount to the valuations of comparable properties and the replacement cost of a new office building in the vicinity.

Post-acquisition aggregate leverage also remains comfortable at 37.1%, up from 36%.

Goldman Sachs is maintaining a “buy” rating on the stock with an unchanged 12-month DCF-based target price of $1.96.

Although its forecast does not include the pending deal, lead analyst Paul Lian says the proposed acquisition underpins CCT’s focus on value creation through portfolio reconstitution and gives CCT a foothold in Marina Bay, a key office sub-market.

Deutsche Bank has a “hold” on CCT with an ex-rights target price at $1.75.

“While we see CCT now being the best proxy for the office sector post transaction, the estimated moderate growth is not attractive enough in our view for a cyclical sector,” says lead analyst Joy Wang.

Although the 3.6% initial yield on a 88.5% occupied Grade A asset is a decent pricing, Wang says the potential ramp up in occupancy could largely be offset by the negative rental reversion given the less bullish view on the Singapore office sector.

RHB is maintaining its “take profit” rating on CCT with a revised ex-rights target price of $1.60.

Although the acquisition comes at a good time when office supply is tapering off and rentals bottoming out, the transaction is dilutive to RHB’s FY18 DPU and yield.

“Including leases that will only start in March, the property has a committed occupancy rate of 88.7%. This is below CCT’s portfolio occupancy rate of 97.6%,” says analyst Vijay Natarajan.

As at 11.45am, units of CCT are trading 2 cents lower at $1.68.

This story, written by PC Lee, first appeared on The Edge Singapore.

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