SINGAPORE (Jan 14): UOB Kay Hian is maintaining its “buy” call on CapitaLand Commercial Trust (CCT), while raising its target price to $2.11 from $2 previously after fine-tuning 2018-20F DPU by –3 to 1% upon adjusting rental assumptions.

This comes as the research house now expects positive rental reversions for Asia Square Tower 2 in 1H19 with improved occupancy due to The Work Project Kingdom (TWPK) – a 50:50 co-working joint venture between CCT’s sponsor CapitaLand and The Work Project – leasing 41,000 sf at the property, with contributions estimated to kick in from Jan 2019.

UOB is also anticipating positive rental reversions for Capita Tower, Raffles City and CapitaGreen in the latter half of the year, especially CapitaGreen given its net lettable area (NLA) of 158,900 sf up for renewal with average rent of expiring leases at $11.07 psf in 2H19.

In a Monday report, analyst Jonathan Koh says he believes CCT is set to maintain positive rental reversion for its portfolio in 2020, as the average rent of expiring leases drops further to $9.55 psf in 2020 from $10.70 psf this year.

Citing CBRE data, the analyst is conservatively expecting grade ‘A’ office space within Singapore’s core central business district (CBD) to increase 8% in 2019.

“Supply of new office space will taper to 1.2 million sq ft in 2019 and 1.0m sf in 2020, after a deluge of 2.7 million sf in 2017 and 1.7 million sq ft in 2018. CCT is a prime beneficiary of an upturn in office rent as it is the largest landlord in Singapore’s CBD with grade-A office buildings accounting for 81% of its portfolio NLA,” he notes.  

Going forward, Koh believes CCT may consider AEI for HSBC Building once HSBC bank relocates to Marina Bay Financial Centre (MBFC) Tower 2.

He also highlights how the trust has an option to acquire a remaining 55% stake in CapitaSpring from its joint venture partners, CapitaLand and Mitsubishi Estate Co, within five years after TOP.

As at 11.16am, units in CCT are trading flat at $1.82 or 0.9 times 2018F book value.