by winston » Fri Jun 27, 2008 10:03 pm
Not vested. From Kim Eng:-
CapitaCommercial Trust – Initiating Coverage (Wilson, DID: 64321454)
Previous Day Closing price: $1.99
Recommendation: BUY
Target price: $2.46
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Top landlord of prime Grade A office space
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Rental reversion to provide upside in yields
CapitaCommercial Trust (CCT) is currently the top listed commercial landlord in Singapore, with over 2.8m sq ft of net lettable Grade A office space (about 10% of the total office stock in the CBD and Orchard Road Corridor).
CCT’s portfolio comprises of 7 Grade A office buildings, 2 carpark developments and a 60%-stake in Raffles City. In the pipeline are Wilkie Edge (under construction) and possibly the redevelopment of Market Street Car Park into a prime office development.
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Strong synergies with CapitaLand group of companies
Asking rents for office space have been increasing sharply over the past 2 years, with rental of prime Grade A office space in the CBD averaging $16.00 psf in 4Q07, up about 171% from $5.90 psf in 4Q05.
Current average gross rentals for CCT’s key properties (like 6 Battery Road and Raffles City Tower) are about 50% off the micro-market rents and we expect further upside when the rents revert towards market levels as existing leases expire.
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Market Street is a trump card in hand
CCT has been a major beneficiary of the strong pipeline of properties developed by CapitaLand. Following its listing, CCT has further acquired the HSBC Building, Wilkie Edge and One George Street from CapitaLand. Together with its sister REIT, CapitaMall Trust, CCT has also been creating value at Raffles City from asset enhancement initiatives.
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Trusty REIT
In January 2008, CCT announced that it had been granted an Outline Planning Permission from the URA to redevelop Market Street Car Park into an office block with a plot ratio of up to 14.49x. We estimate that the redevelopment would cost CCT around $1.25b, but would create value of about $280m for unitholders, or $0.20 per unit. While CCT recently announced that it will defer its decision on the redevelopment to no earlier than mid-2009, we think that it remains a valuable option to CCT.
CCT offers exposure to quality assets, managed by an experienced and proven REIT manager. Its gearing (debt to deposited assets) remains at a comfortable 40%. With the gearing for REITs capped at 60%, there is some headroom for future acquisitions. FY09 yield of 6.2% is an attractive proposition given its underlying quality assets. Based on our DDM valuation, we have a target price of $2.46 for CCT. Initiate with a BUY recommendation.
It's all about "how much you made when you were right" & "how little you lost when you were wrong"