CapitaLand - CGS-CIMB Research 2019-01-07: Joining Shanghai’s Most Coveted Office Area


CapitaLand - Joining Shanghai’s Most Coveted Office Area

  • CapitaLand has entered a JV to acquire c.70% of Pufa Tower (浦发大厦) in Shanghai, China for Rmb2,752m; this will be seeded into a commercial value-add fund.
  • Post-acquisition, CapitaLand will undertake a comprehensive asset enhancement initiative (AEI) to extract greater value.
  • We maintain our ADD call with a Target Price of S$3.55.

Acquisition of a prime office building in Shanghai via JV

  • CAPITALAND LIMITED (SGX:C31) has acquired c.70% of Pufa Tower in Shanghai, China for Rmb2,752m (about S$546.3m) via a 50:50 joint venture with an unrelated third party. This asset is operational and will immediately contribute to the group’s recurring income.
  • The property has been identified as a prime asset to be seeded into the value-add fund CapitaLand is setting up to invest in key gateway cities in Asia. The fund size is expected to be up to US$1bn AUM.

Maiden entry into Lujiazui CBD

  • The acquisition represents CapitaLand’s first office property in Shanghai’s core Lujiazui CBD in Pudong New Area. Office rents in Lujiazui CBD are the highest in the city and are expected to trend upwards in view of the sharp decline in office supply from 2019.
  • CapitaLand will own levels 8-19 and 21-32, representing a total GFA of 41,773 sqm of the 34-storey tall building and 61 car park lots. The ground floor lobby and level 20 are co-owned with Shanghai Pudong Development Bank, which owns the rest of the building.

Strong potential for enhancement

  • With its last major renovation in 2002, CapitaLand sees significant potential in enhancing the asset’s value by upgrading specifications, tenant mix and improving operational efficiencies; this could improve net yield of > 4%.

Maintain ADD

  • We maintain our ADD call and Target Price of S$3.55 which is pegged to a 35% discount to RNAV.
  • Potential catalysts include faster-than-expected pace of re-investment while downside risks would be a slowdown in pace of capital deployment or rate of investment returns.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-01-07
SGX Stock Analyst Report ADD MAINTAIN ADD 3.550 SAME 3.550