CapitaLand Commercial Trust - RHB Invest 2019-07-19: Acquisition Of Main Airport Center, Frankfurt ~ Positive But Priced In


CapitaLand Commercial Trust - Acquisition Of Main Airport Center, Frankfurt ~ Positive But Priced In

  • Maintain NEUTRAL with higher Target Price of SGD1.98 from SGD1.90, 8% downside plus 4% yield.
  • CapitaLand Commercial Trust’s acquisition of a second overseas asset should help its earnings/geographical diversification. Asset enhancement plans at 21CQ and SBR are timely to maintain its prime CBD positioning.
  • We believe positives are largely priced in with the stock trading at 1.2x P/BV (yield at 4.1%). Our higher Target Price mainly reflects the lowering of our COE assumptions by 20bps to 7% to better reflect the prolonged low interest rate environment.

Deepens Frankfurt market presence with accretive acquisition of MAC.

  • CAPITALAND COMMERCIAL TRUST (SGX:C61U) announced plans to acquire its second overseas asset, a 94.9% stake in Main Airport Center (MAC), Frankfurt from its sponsor for €251.5m (SGD387.1m). The freehold asset has a current occupancy of ~90% with a WALE of 4.7 years. The initial NPI yield is 4%, similar to its previous acquisition of Gallileo in May 2018.
  • The acquisition is likely to be funded by a mix of debt and equity (45:55) and is DPU accretive with ~1% accretion to FY18’s DPU. Management sees room for upside from occupancy improvements on favourable market outlook. The acquisition is subject to unit holders’ approval and is expected to be completed by 4Q19.

Wework to occupy entire 21CQ post major refurbishment.

  • As widely anticipated, CapitaLand Commercial Trust will be undertaking major upgrading works at 21 Collyer Quay (21CQ) for SGD45m with the sole tenant HSBC leaving by Apr 2020. The asset enhancements will include the common and lettable areas, as well as essential equipment, and is expected to be completed by 4Q20. The building will then be fully let to leading coworking operator, WeWork (its biggest office lease in SG), which has signed a 7-year lease commencing 2Q21.
  • Overall, CapitaLand Commercial Trust expects to achieve an ROI ~9% from asset enhancements, which is based on incremental rent growth achieved compared to its estimated market rents. Co-working operators will account for ~7% of its total tenant base upon completion.

Refreshing SBR.

  • Six Road will be carried out in phases from 1Q20 to 3Q21, with some minor disruptions expected.
  • Management is currently in advanced discussion with key tenant, Standard Chartered bank (SCB), and is confident of the tenant retaining the majority of its space upon renewal. The target ROI for AEI is ~8%.

Placement to fund MAC.

  • In conjunction with the acquisition announcement, CapitaLand Commercial Trust raised gross shares, which saw strong interest with the books 5x covered.

Earnings adjustments.

  • Our FY19F-21F DPU are revised by -2% to +3%, factoring in the new shares and contributions from the acquisitions.

Vijay Natarajan RHB Securities Research | 2019-07-19
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.98 UP 1.860