What is the news?
CapitaLand Commercial Trust (CCT) announced the acquisition of Asia Square Tower 2, a premium Grade A office building from BlackRock Asia Property Fund III L.P. for S$2,096mn or S$2,689/psf. Total Net Lettable Area for AST 2 includes 753k sqft of office space and 25.3k sq ft of retail space. Completed in 2013, remaining land tenure for AST2 stands at 89 years. To be partially funded by debt/rights issue/divestment proceeds, pro-forma aggregate leverage of CCT will increase from 36% to 37.1% post acquisition.
How do we view this?
Maintain ACCUMULATE with unchanged DDM-derived target price of S$1.80
Post-acquisition and rights issue, our FY17e/FY18e DPU forecasts are adjusted by -4.6%/0%. Our target price of S$1.80 represents a P/NAV of 1.0x and FY18e yield of 5%.
Figures 1 and 2: CCT trades at slightly richer valuations against post-GFC average dividend yields and P/NAV
Source: Bloomberg, Phillip Securities Research (Singapore)
Figure 3: Peer comparison table