Capitaland - RHB Research 2015-10-15: Preferred Bidder For Asia Square Tower One

Capitaland - RHB Research 2015-10-15: Preferred Bidder For Asia Square Tower One CAPITALAND LIMITED C31.SI 

Capitaland - Preferred Bidder For Asia Square Tower One 

  • In this report we conducted a sensitivity analysis on CapitaLand’s TP to the purchase price of its impending Asia Square Tower One acquisition. 
  • Maintain BUY and SGD4.22 TP (39% upside). 
  • We think at the purported price of SGD3.5bn-4.2bn, valuations appear tight and this could impact our TP in the -0.9% to 0.7% range. This is predicated on a 50% stake in the building and a fully debt-funded acquisition. 

 Largest Singapore office transaction. 

  • A consortium of Norway’s sovereign wealth fund (Norges Bank Investment Management) and CapitaLand was chosen as the preferred bidder for Asia Square Tower One. It is being sold by BlackRock Inc in what could become the biggest office deal in the city state. It beats ARA Asset Management (ARA SP, NR), which also submitted a final bid for the building. The previous weighty office transaction was Keppel Land’s 2011 sale of a 99.9% stake in Ocean Financial Centre at SGD2.3bn to Keppel REIT (KREIT SP, SELL, TP: SGD0.86). The bidding group is to start exclusive talks with BlackRock and could reach an agreement next month. 

 Tight valuations. 

  • Market talk has tagged the building at SGD3.5bn- 4.2bn, which translates to ~SGD2,800-3,400 psf. The 43-storey tower has 1.2m sq ft of offices and about 40,000 sq ft of retail space. In our sensitivity analysis, we expect the sale to be concluded by year-end and have assumed a 50-50% joint-venture (JV) stake on the asset with a terminal cap rate of 4%. We expect the acquisition to be fully debtfunded. Our conservative fair value on the asset stands at SGD3.7bn, with an average passing rent of SGD14 psf/month in 2015. 

 Financial impact. 

  • We think valuations are tight at the SGD3.5bn-4.2bn asking price range. Our sensitivity analysis indicated a modest TP impact of 0.7% to -0.9% and net gearing to increase to 60-61% from 53% in 2Q15. We have not factored this into our model, pending the final purchase announcement and the possibility of equity fund-raising. 
  • We think CapitaLand can potentially inject this asset into CapitaLand Commercial Trust (CCT SP, SELL, TP: SGD1.15) further downstream. CapitaLand Commercial Trust had a SGD2.2bn debt headroom as of 2Q15 before it hits the 45% gearing threshold. However, it still needs an estimated additional SGD940m-1,009m to acquire the remaining 60% stake in CapitaGreen from CapitaLand and Mitsubishi Estate Co Ltd (8802 JP, NR) before its call option expires by 2017. 
  • Reiterate BUY on CapitaLand with an unchanged SGD4.22 TP for now.

Ong Kian Lin RHB Securities | Ivan Looi RHB Securities | http://www.rhbgroub.com/ 2015-10-15
RHB Securities SGX Stock Analyst Report BUY Maintain BUY 4.22 Same 4.22