CapitaLand - Buys properties in Japan
- Deepens exposure in Japan with S$620.1m of acquisitions.
- Initial entry yield of 4.1% with potential upside over the next 2-3 years.
- Maintain Add with an unchanged TP of S$4.19.
Deepens exposure in Japan
- CapitaLand announced that it has purchased three office buildings and a mall in the Greater Tokyo area for ¥49.7bn (S$620.1m), or ¥51bn (S$636.3m) including transaction costs.
- The properties, with a combined NLA of c.921,000sqft, include two office buildings in Yokohama (Yokohama Blue Avenue and Sun Hamada), Kokugikan Front in Tokyo and Seiyu & Sundrug, a shopping mall in Saitama.
Initial entry yield of 4.1% with upside potential
- The initial entry yield of 4.1% translates to a net operating income of S$25m p.a. This yield can be potentially raised to 4.5-4.8% over the next 2-3 years.
- Yokohama Blue Avenue is currently 87% occupied. The outlook for the Greater Tokyo office market is expected to remain positive, with vacancies expected to stay low over the next few years.
Acquisitions boost Japan asset size by 39% to S$2.5bn
- This transaction will be funded by internal resources and borrowings, and will boost the group’s asset size in Japan from S$1.8bn to c.S$2.5bn and retail footprint to 2m sq ft. This could raise the group’s gearing to 0.44x, from 0.41x.
- These acquisitions will not only add immediately to the recurring income stream but, with an enlarged portfolio in Japan, CAPL would be able to develop its platform in the country and potentially consider more capital recycling options in the future.
- We leave our earnings estimates and RNAV of S$5.23 unchanged for now. Maintain our Add call with a target price of S$4.19.
- Continued reinvestment into new RNAV accretive projects is a key potential re-rating catalyst.
- Potential downside risks include slower-than-expected deployment of capital.