Credit Suisse cuts CapCom Trust to $1.70, keeps outperform

Stock Name: CapitaComm
Company Name: CAPITACOMMERCIAL TRUST
Research House: Credit Suisse

Credit Suisse has lowered its target price for CapitaCommercial Trust (CACT.SI), a real estate investment trust managed by Southeast Asia’s largest property developer CapitaLand (CATL.SI), to $1.70 from $1.81 but kept its outperform rating.

CapCom Trust said on Tuesday it plans to jointly develop Market Street Car Park in Singapore with parent CapitaLand (CATL.SI) into a Grade A office tower at a cost of around $1.4 billion.

CapCom Trust will own 40% and CapitaLand will hold the remaining stake. The redevelopment is expected to be completed before the end of 2014.

Credit Suisse said the guided stabilised yield of 6% per annum translates into gross rent of $12 per square foot (psf) a month, which it believes is a little conservative as the current asking rents for super prime A property are already at the $12-12.50 psf levels.

But the brokerage said the redevelopment is CapCom Trust’s best option at this stage for the redeployment of its cash pile given the extremely competitive merger and acquisitions environment.

CapCom Trust reported on Tuesday first quarter distribution per unit of 1.84 cents, down 4.7% year-on-year, hurt by the loss in rental income resulting from sales of Robinson Point and StarHub Centre.

At 9:46 a.m., CapCom Trust shares were flat at $1.41 on a volume of 2.6 million shares.