CapitaLand Commercial Trust could see DPU boost despite initial dilution: OCBC

By Michelle Zhu / The Edge Singapore | September 27, 2017 12:36 PM SGT
SINGAPORE (Sept 26): OCBC Investment Research is keeping its “hold” recommendation on CapitaLand Commercial Trust (CCT) with a lower fair value estimate of $1.65 from $1.69 previously.
This follows the trust’s announcement last week of its acquisition of Asia Square Tower 2 from BlackRock for a total of $2.15 billion, which the trust intends to fund via equity, debt, and its divestment proceeds from Golden Shoe Car Park, One George Street and Wilkie Edge.
The agreed property value of $2.1 billion translates to $2,689 per sq ft on net lettable area (NLA), and is expected to contribute an initial net property income (NPI) yield of 3.6% based on CCT’s committed occupancy rate of 88.7% as at end-June, notes lead analyst Andy Wong in a Tuesday report.
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"We see potential upside to this NPI yield as we are confident that management would be able to ramp up the occupancy rate of the property amid a recovering office market,” comments Wong.
“This acquisition yield also compares favourably to the exit NPI yield achieved by CCT for One George Street (3.2%) and Wilkie Edge (3.4%),” he adds.
In the analyst’s view, the hotel component of Asia Square Tower 2, which is excluded from CCT’s acquisition deal, is set to provide the trust a number of benefits.
This includes addition of a premium Grade A property with efficient floor plates at a strategic location; the diversification of the trust’s tenant base; and a reasonable agreed property value in relation to comparable Grade A office assets.
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Wong emphasises that the rights issue would also impose an initial dilution to the distribution per unit (DPU) of CCT – although he sees room for DPU to be boosted once occupancy is ramped up at AST2, coupled with the potential to benefit from uplift in market spot rents in FY18.
Following a change in analyst coverage, OCBC’s DPU forecasts for CCT in FY17 and FY18 have been adjusted by -9.1% and -9.2% respectively.
This article, written by Michelle Zhu, appeared in The Edge Singapore.