CAPITALAND COMMERCIAL TRUST
C61U.SI
CapitaLand Commercial Trust - Acquisition Looks Promising
- We advise existing unitholders of CCT to vote for the acquisition of the remaining 60% of CapitaGreen, as we estimate that it could provide a 1.5% FY17 DPU uplift.
- We deem the acquisition price to be reasonable as it would price the Grade A office building at a cap rate of c.3.8%, while gearing ratio would remain healthy at c.38%.
- Maintain NEUTRAL with a revised SGD1.33 TP and an implied total return of c.3%, as we note that the overall office leasing market continues to be sluggish.
Good time to exercise call option.
- CapitaLand Commercial Trust (CCT) has proposed to exercise its call option to acquire the remaining stake in CapitaGreen, at a total outlay of SGD393.0m via debt. This would value CapitaGreen at SGD1.6bn (SGD2,276 psf), with our cap rate estimate of 3.82%.
- Management cited that it is a good time to acquire the asset as it expects CapitaGreen’s capital value to appreciate further. The acquisition, which is subjected to its unitholders’ approval, is expected to be completed in 4Q16 once approval is obtained.
We consider the proposed acquisition price to be fair
- We consider the proposed acquisition price to be fair as its estimated cap rate is within the upper bound of the market yield range of 3.60-3.85% (CBRE).
- Likewise, when compared to the potential office transaction of Asia Square Tower 1, which could be valued at c.SGD2,700 psf, CCT’s proposed acquisition is also deemed reasonably priced as it suggests a c.19% discount. This takes in account that CapitaGreen has a shorter land tenure balance.
Acquisition would be beneficial to unitholders
- Acquisition would be beneficial to unitholders as we expect the acquisition to be an accretive one, providing a 1.5% FY17 DPU uplift, as the acquisition would be funded by bank borrowings, at an average cost of 3.0%.
- We also note that its gearing ratio is expected to remain healthy, increasing to c.38% upon acquisition from c.30% as at 31 Mar 2016.
- In view of the challenging leasing environment for the next two years, we think CapitaGreen’s lease expiry profile is favourable as it does not have any exposure to lease expiry till 2018. Therefore, it minimises rental downside for CCT’s portfolio.
We advise existing unitholders to vote for the acquisition of the remaining stake in CapitaGreen
- ...mainly due to its yield accretion. Furthermore, we deem the price consideration to be reasonable, and its gearing ratio would be within comfortable levels.
- Factoring in the deal, we adjust our FY16F-17F DPU upwards by 0.4% and 1.5% respectively, with a higher TP of SGD1.33 (from SGD1.30).
- Maintain NEUTRAL as it implies a total return of c.3%.
Ivan Looi
RHB Invest
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http://www.rhbinvest.com.sg/
2016-05-24
RHB Invest
SGX Stock
Analyst Report
1.33
Up
1.30
