CapitaLand Commercial Trust - OCBC Investment 2016-05-25: To acquire remaining 60% of CapitaGreen

CapitaLand Commercial Trust - OCBC Investment 2016-05-25: To acquire remaining 60% of CapitaGreen CAPITALAND COMMERCIAL TRUST CCT C61U.SI 

CapitaLand Commercial Trust: To acquire remaining 60% of CapitaGreen 

  • CapitaGreen valued at S$2.28k psf 
  • To be wholly financed by debt 
  • Expected to be DPU accretive 

Proposes to exercise call option to acquire remaining 60% of CapitaGreen 

  • CCT has proposed that it would exercise its call option to acquire the remaining 60% of MSO Trust – a special purpose sub-trust which holds CapitaGreen, a grade A office tower with a 57- year leasehold tenure – for a total acquisition outlay of ~S$393m. The remaining stakes of MSO Trust are held by CapitaLand Group (50%) and Mitsubishi Estate Asia Pte Ltd (10%), and the transaction translates to an asset valuation of S$1,600.5m, or S$2,276 psf, which was derived from the average of two independent valuations conducted by Knight Frank and CBRE. 
  • We understand that CCT plans to fund the acquisition wholly through S$393m of debt and in addition, will also assume S$534m of debt from CapitaGreen’s existing borrowings. 

Transaction to be wholly financed by debt and expected to be DPU accretive 

  • As at end Mar 2016, CapitaGreen’s committed occupancy was 92.8%, with no leases expiring over the period of heavy supply before 2018. 
  • Given that this acquisition is to be wholly financed by debt, it is expected to be accretive; on a pro-forma basis, CCT’s 1Q16 DPU would have increased by 1.4% to 2.22 S-cents from the reported 2.19 S-cents with the proposed acquisition. 
  • The pro-forma aggregate leverage of the trust will also increase from 30.1% (as at end Mar 2016) to 37.7%, which is still below the long term ceiling of 40% set by management and significantly below the 45% regulatory limit. 
  • All things considered, we see this acquisition to be a net positive, given that the trust will is acquiring full control of an asset it understands well at a reasonable valuation and this will be DPU accretive. 
  • This acquisition will be subject to the approval of CCT’s shareholders at an EGM later this year; pending its approval, our fair value estimate of S$1.39 remains unchanged. 
  • Maintain HOLD.

Eli Lee OCBC Securities | 2016-05-25
OCBC Securities Analyst Report HOLD Maintain HOLD 1.39 Same 1.39