CapitaLand Commercial:Hold,Well positioned

We incorporate recent developments; impact minimal: We incorporate the impactof a slew of corporate activity at CCT including divestments of One George Street(50% stake), Wilkie Edge, and the subsequent redevelopment plans around GoldenShoe Carpark together with the conversion of the convertible bonds. Golden Shoewill be redeveloped into a 1msf GFA integrated development (total cost: SGD1.82bn;land cost: SGD1.12 bn is 61.5% of total) with CCT owning a 45% interest togetherwith CapitaLand (45%) and Mitsubishi Estate (10%). The development will comprisea Grade-A office (NLA: 635,000sf); ancillary retail (NLA: 635,000sf); a food centre(GFA: 44,000sf); and a 299-room serviced apartment managed by Ascott. Targetcompletion is 1H2021 with management targeting a 5% yield on cost. While the lossof income from divestments of the 50% stake in One George Street and Wilkie Edgeimpacts operating DPU, we note CCT has cSGD20m of tax-exempt income fromprior periods as well as proceeds from these recent divestments that can be used tosmooth out distributions until the completion of the Golden Shoe redevelopment in1H2021. Overall, we expect management to keep a stable DPU profile over FY17-19;changes to our estimates are minimal. In this note, we introduce FY19 estimates.

    Signs of recovery for Singapore office; we remove our target discount: Wehave been ascribing a target discount of 5% to the average of our DDM and RNAVvaluation when arriving at our target price for CCT to reflect our view of Singapore’soffice market. With signs of recovery especially for the Grade A/A+ office segmentand an expected gradual uptick in market rents, we believe this discount is no longerwarranted and accordingly remove it from the calculation of our target price.

    Raise TP 5.7% to SGD1.85 (from SGD1.75); maintain Hold: Our RNAV remainsunchanged at SGD1.94, but we lower our DDM valuation marginally to SGD1.72(from SGD1.77) as the impact of recent divestments (50% stake in One GeorgeStreet and Wilkie Edge), affects our long-term core DPU projections (our DDMvaluation is based off sustainable long-term payouts and excludes the impact of oneoffcapital distributions). The net impact of this is a minor decrease in the average ofour two valuations to SGD1.83 (from SGD1.85)