CapitaLand Commercial Trust - CIMB Research 2017-05-02: Divests 50% of OGS

CAPITALAND COMMERCIAL TRUST C61U.SI

CapitaLand Commercial Trust - Divests 50% of OGS

CCT announced it has sold 50% of One George St (OGS) to insurer FWD Group (FWD). Post sale, OGS will be held through an SPV, One George St LLP, with CCT holding a 50% share and FWD the remaining 50%.
We understand FWD Group is the insurance business arm of investment group Pacific Century Group.
The transaction is expected to be completed by end-June 2017.

The deal is based on an agreed value of OGS of S$1,183.2m or S$2,650psf. This is 16.7% higher than its Dec 16 valuation and translates into an annualised 3.2% net property yield.
CCT is expected to recognise a gain of S$84.6m (or S$79.7m net of S$4.9m of transaction and related costs).

Post sale, CCT’s Manager will continue to be the asset and property manager. On completion of the transaction, CCT's book NAV is expected to increase 4 Scts to S$1.77/unit while DPU could dip 0.4 Scts annually on loss of its share of income.
Sale proceeds are expected to be used for either repaying borrowings or to fund growth opportunities. Assuming repayment of loans, its gearing is likely to decline to 33.6% from the present 38.1% as at Dec 16.

We see this capital-recycling move as positive for the trust. The increased debt headroom as well as the cash proceeds will increase the group’s financial flexibility, including funding growth opportunities, such as the potential redevelopment of Golden Shoe Carpark.
Assuming a post-sale gearing target of 40%, CCT has potential debt headroom of c.S$850m.

We leave our FY17-19 DPU estimates unchanged for now, pending more details on the utilisation of sales proceeds.
Our current recommendation is Hold, with a DDM-based target price of S$1.55.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-05-02

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