CapitaLand Commercial Trust - Maybank Kim Eng 2018-07-02: Divest Twenty Anson

CapitaLand Commercial Trust - Maybank Kim Eng Research 2018-07-02: Divest Twenty Anson CAPITALAND COMMERCIAL TRUST SGX:C61U

CapitaLand Commercial Trust - Divest Twenty Anson

Slight DPU cut; Maintain HOLD

  • CCT announced the divestment of Twenty Anson. We view this deal positively as it allows the REIT to cash out of a mature property at an attractive premium. The deleveraged balance sheet also leaves more capacity to fund overseas expansion.
  • Our FY18E DPU is largely unchanged, but we lower FY19-20E by 1% after factoring in the divestment. We trim Target Price by 1% to SGD1.80, based on an unchanged target yield of 5%. Maintain HOLD.
  • Risks come from sharp falls in office rents and overpaying for acquisitions. Prefer developer landlords, UOL and GuocoLand, for office exposure.

Divests mature asset at attractive premium

  • CCT will divest Twenty Anson for SGD516m or SGD2,503 psf NLA. The sale price is an attractive 19% premium over its latest carrying value of SGD433m and 20% higher than its purchase price of SGD430m in 2012.
  • After accounting for transaction cost of c.SGD3.5m, this deal should allow it to book a net gain of about SGD80m or 2cts per share. The sale price implies a narrow exit cap rate of 2.7%, based on the property's NPI of SGD13.8m over the past year.

Lower gearing frees up capacity for next acquisition

  • This divestment will lower its leverage to 35.7% from 39% after the recent acquisition of Germany property Gallileo. We estimate decent debt headroom of SGD0.75b and SGD1.8b to aggregate leverage limits of 40% and 45% respectively.
  • The reduced gearing offers significant flexibility in funding its overseas expansion. CCT plans to allocate 10-20% of its assets into overseas investments from 5% currently.

Small DPU cut

  • Twenty Anson accounts for 4% of its assets and contributes 5% to our FY19E NPI. While the divestment will lead to lower property income, it is largely offset by interest savings from debt repayment and lower asset management fees. As such, we lower our FY19-20E DPU by just 1%.
  • By assuming a completion in 3Q18, FY18E DPU is largely unchanged.

Derrick Heng CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-07-02
SGX Stock Analyst Report HOLD Maintain HOLD 1.80 Down 1.820