Compiled by Navin Sregantan
CAPITALAND COMMERCIAL TRUST (CCT) | SELL (DOWNGRADED)
JUNE 24 CLOSE: $2.14
FAIR VALUE: $1.88
OCBC Investment Research, June 24
The share price of CCT has ballooned 22.3 per cent in the year up to June 21 (total returns: positive 25.2 per cent), supported by a flight to defensive safe names and a dovish bias from the US Federal Reserve.
This has resulted in CCT's estimated FY2019 distribution yield compressing to 4.3 per cent, based on our forecast, or 4.2 per cent according to Bloomberg's blended forward 12-month consensus.
The latter is not just at the lowest level over an eight-year period (negative 2.2 standard deviations from mean), but we would have to go all the way back to November 2007 when CCT last traded at such tight valuations in terms of absolute yield.
Even if subsequent rate cuts do happen, it would likely be driven by a slowdown in macroeconomic conditions.
While we acknowledge that CCT's high quality portfolio will remain resilient (portfolio weighted average lease expiry of 5.7 years by net leasable area at the end of Q1 2019), it would not be immune to the vagaries of the macro environment.
We downgrade CCT from "Hold" to "Sell", with an unchanged fair value of $1.88 on valuation grounds.
FRASERS CENTREPOINT TRUST (FCT) | NEUTRAL (RE-INITIATE)
JUNE 24 CLOSE: $2.59
TARGET PRICE: $2.33
KGI Securities, June 24
FCT recently acquired an 18.8 per cent stake in PGIM Real Estate Asia Retail Fund (PREARFL), the largest non-listed retail fund in Singapore and a 33.3 per cent stake in Waterway Point from sponsor, Frasers Property.
Approximately 36 per cent of retail supply will be outside of the city central, competing directly with FCT for future shopper traffic.
We re-initiate coverage on FCT with a target price of $2.33 on the basis of a 6.9 per cent cost of equity and 1.5 per cent terminal growth rate.
This represents a 4.2 per cent downside, inclusive of FY2019's forward dividend yield of 4.8 per cent.
While FCT stands out among the Singapore real estate investment trusts (S-Reits) with a clear growth strategy, we prefer to wait for a more attractive entry price.
In comparison with peers, FCT's is in line with other quality retail S-Reits in terms of price-to-earnings ratio and forward dividend yield.
Risks to our recommendation include a lacklustre performance of the smaller malls and a lack of control of PREARFL assets at this point in time.
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.
The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
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