Dear readers, shortly after REIT-it’s post on why Capitaland Commercial Trust (CCT) is undervalued (See link here: https://reitit.org/2018/07/18/why-capitaland-commercial-trust-cct-is-deeply-undervalued/), CCT’s half-yearly valuation report confirmed REIT-it’s thesis that the capitalization rates on CCT’s assets are too high by adjusting capitalization rate down by 10 basis points.
In REIT-it’s opinion, the revaluation is still pretty conservative with 999-year leasehold assets i.e. Six Battery Road and HSBC Building valued using a 3.5% capitalization rate. Recent transactions of freehold 55 Market Street had an NPI yield of 1.7% while other transactions were closed at mid-2% level. While REIT-it is not suggesting that the fair capitalization rate for freehold assets would be at mid-2% level, REIT-it feels that capitalization rate of low 3% would be justifiable for Six Battery Road and HSBC Building which accounts for c.17.7% of the portfolio.
Coupled with potential rental uplift in 2019, REIT-it believes that there are still much value to be uncovered from this undervalued counter.
That’s all for now. Till next time…
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Disclaimer: This report reflects only the sincere opinion of the writer. Reader should exercise personal discretion when deciding on any investment.