CapitaLand Limited - OCBC Investment 2017-06-06: Fine Tuning Its Chinese Asset Portfolio

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CAPITALAND LIMITED C31.SI

CapitaLand Limited - Fine Tuning Its Chinese Asset Portfolio

• Acquires Chinese serviced services.
• Trades office assets in Shanghai.
• Maintain BUY.

Transactions in Chinese serviced residences and office assets 

• Capitaland Limited (CAPL) recently announced that it will acquire, based on an agreed aggregate value of US$56.9m (S$78.8m), two serviced residences assets in Chongqing and Chengdu, China. 
• In Shanghai, the group also reported that it has agreed to buy for RMB2.64b (S$535m) Guozheng Center, a newly completed office development, while divesting Innvo Tower for RMB1.56b (S$316m). The Innov Tower sale is expected to result in net profits of S$85m.

Continues to actively scale up serviced residences portfolio 

• We like that the group continues to scale up its serviced residences business segment while actively reconstituting its portfolio. 
• In 2017, we expect about 2.6k serviced residences units to be opened and note that CAPL secured new management contracts to manage six properties in China over 1Q17, which added over 1.2k units to its serviced residences portfolio. 
• The group also divested serviced residences properties in Germany to Ascott REIT which was approved earlier this year.

Favorable trade in Shanghai office assets 

• We see the set of transactions of office assets in Shanghai as favorable. The group will realize value from Innov Tower, a relatively stabilized asset, at RMB38.5k psm which will result in a respectable gain while recycling the capital into the newer Guozheng Tower, completed in 4Q16 and located in the strategic Wujiachang district in the northern part of Shanghai, at an attractive valuation of RMB32.7k psm. 
• CAPL is gaining exposure to Guozheng Tower at an attractive entry yield and we understand that one of the three office towers, with 18k sqm of GFA, has already been fully leased with active interest in place for the remaining space. 
• On completion of both office transactions, the group will have a sizeable portfolio of over 1.7m sqm of GFA under management across 17 commercial assets in Shanghai. 
• Maintain BUY with an unchanged fair value estimate of S$4.07.

Eli Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-06-06

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 4.070 Same 4.070