CapitaLand Commercial Trust - Divests 50% stake in One George Street at 17% premium to book value
- CapitaLand Commercial Trust (CCT) announced divestment of 50% stake in One George Street (OGS) to insurer FWD Group. The agreed value of entire OGS is SGD1.18b, or SGD2,650psf, a 16.7% premium to its book value of SGD1.01b. CCT will reap a netgain of SGD79.7m from the sale.
- OGS is 96.5% occupied as at end Mar 2017 and has a remaining lease-term of 85 years. Post divestment, CCT will continue to hold the remaining 50% stake in the building and will remain as the asset and property manager.
- The transaction is expected to be completed by Jun 2017.
- The move is slight positive but has been widely anticipated by the market. We view the exit NPI yield of 3.2% as fair and in-line with recent office market transactions of ~3-3.5%.
- The transaction clears potential equity fund raising concerns on CCT to fund the upcoming redevelopment of Golden Shoe Car Park(GSCP). Post divestment, CCT's gearing is expected to decline from 38.1% to 33.6%. Assuming a comfortable gearing of 40% will give ~SGD900m in debt headroom.
- DPU (pro-forma FY16) is expected to see a 4.4% decline due to the divestment. CCT has a retained tax-exempt income of SGD22.5m which we believe will be distributed in next 2-3 years to plug some of the shortfall in DPU. Adjusted NAV/unit will increase to SGD1.77 from SGD1.73.
- We currently have a Take-Profit recommendation with a TP of SGD1.68. CCT's share price has done well (+10% YTD) outpacing SGX S-REIT Index (+9%). We believe most of the near-term positives are currently factored in the share-price.
- Potential upside for the stock is lower than expected total re-development cost of GSCP. At current share price level CCT offers FY17-18F yields of 5.6%.