CapitaLand Commercial Trust - CGS-CIMB Research 2018-06-29: Divesting Twenty Anson

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CAPITALAND COMMERCIAL TRUST SGX: C61U

CapitaLand Commercial Trust - Divesting Twenty Anson

• CapitaLand Commercial Trust (CCT) is monetising Twenty Anson for S$516m, 19.2% above Dec 17 valuation.
• CCT’s gearing can decline by c3.4% pts if proceeds are utilised to repay bank loans.
• This improves debt headroom for new investment opportunities.
• We maintain our ADD call with a slightly lower DDM-based Target Price of S$1.90.

Sells Twenty Anson

• CapitaLand Commercial Trust (CCT) announced it has entered into an agreement to sell Twenty Anson to an unrelated third party for S$516m or S$2,503 psf.
• Twenty Anson is a 206,000 sq ft NLA building in Tanjong Pagar and has an occupancy of 94.3% as at 1Q18. The top three tenants are Toyota Motor Asia Pacific Pte Ltd, BlackRock Advisors Singapore Pte Ltd and BCD Travel Asia Pacific Pte Ltd. The transaction is expected to be completed in 3Q18.

Divestment price at 19.2% above Dec 17 valuation

• The sale is in line with the trust’s portfolio reconstitution strategy. The divestment price is 19.2% above its Dec 17 valuation of S$433m and equates to a 2.7% net property yield, based on the building’s preceeding 12-month net property income of S$13.8m.
• The building accounts for 3% of CCT’s net property income and the divestment could result in a marginal income vacuum in the near term, assuming the sale proceeds are used to repay bank loans.

Improves financial flexibility for new investment opportunities

• Post sale and assuming the proceeds are used to repay existing borrowings, we expect CCT’s gearing to decline by c.3.4% pts from an estimated 37.9% as at 1Q18 to 34.5%. More importantly, with the additional debt headroom, CCT can continue to explore opportunities to enhance its portfolio both in Singapore and overseas.
• CCT had earlier articulated a proposed capital allocation of 10-20% for overseas assets compared to the current level of c.5%.

Maintain ADD

• We adjust our FY18-20 DPU by 0.1-0.6% to reflect the income vacuum from the asset sale, partly offset by interest savings. Our DDM-based Target Price is lowered accordingly to S$1.90.
• CCT’s share price has corrected in recent months and now offers FY18/19 DPU yield of c.5.4%.
• Maintain ADD.
• Key risks include a slowdown in economic growth which could affect appetite for office space.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-06-29

SGX Stock Analyst Report ADD Maintain ADD 1.90 Down 1.940