CapitaLand - RHB Invest 2017-06-01: Shanghai Office Asset Swap

CapitaLand - RHB Invest 2017-06-01: Shanghai Office Asset Swap CAPITALAND LIMITED C31.SI

CapitaLand - Shanghai Office Asset Swap

  • CapitaLand announced concurrent acquisition and divestment of Shanghai office buildings, with a combined value of CNY4.2bn. We view the move as a slight positive as it allows CapitaLand to unlock value from a mature asset, and redeploy the capital into a recently-completed asset with a similar profile at comparatively lower price. 
  • We maintain our NEUTRAL recommendation with unchanged TP of SGD3.84 as we expect the share overhang to persist from the tightening of residential policy measures across various Chinese cities. 
  • Key catalysts ahead include big M&A transactions and the setting up of more private funds, which would boost ROEs.



What’s new? 

  • CapitaLand announced the divestment of Innov Tower in Shanghai’s Xuhui District to an unrelated party for CNY1.6bn (SGD316m). The price works out to be CNY38,500 (SGD7,800) per sqm, based on total GFA of 40,445 sqm. 
  • Concurrently, CapitaLand entered into an agreement with unrelated parties to acquire Guozheng Centre, a newly-completed office development in Yangpu District, Shanghai, for CNY2.6bn (SGD535m) - the price translates to CNY32,713 (SGD6,628) per sqm, based on total GFA of 80,701 sqm. 
  • Both transactions are expected to complete by Jun 2017.


Our view 

  • We believe the transaction is a slight positive as it allows CapitaLand to unlock value from a mature stabilised asset and at the same time, gain entry into a newly-completed property of similar quality at lower price levels. 
  • CapitaLand would reap a net divestment gain of SGD85m from the sale of Innov Tower. Guozheng Centre (completed in 4Q16) is still in the early stages of gestation with current occupancy of 23% (as at end-Apr 2017), and we believe the asset would need another 6-9 months for occupancy to ramp-up.
  • The move comes amid a pick-up in demand for properties in Shanghai’s Fringe CBD. According to a Jones Lang LaSalle (JLL) report, Fringe CBD assets are becoming particularly attractive to cost-conscious CBD tenants looking to consolidate or expand, as well as to companies that are seeking upgrade options from older properties. Decentralised office rents in Shanghai rose 4.4% YoY last year, while CDB rents showed a slight decline in 2H16 after strong 1H16.
  • We currently make no changes to our estimates pending a discussion with management. 
  • We maintain our NEUTRAL call on the stock with unchanged TP of SGD3.84 (pegged at 20% discount to our RNAV of SGD4.80). 
  • Key catalysts ahead include big M&A transactions and the setting up of more private funds that can boost ROEs. 
  • Downside risks to its share price include a potential slowdown in residential sales from the tightening of residential policy measures across various Chinese cities.




Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-06-01
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.840 Same 3.840



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