Property divestments bode well for CapitaLand Commercial Trust’s M&A prospects

SINGAPORE (July 4): UOB Kay Hian is reiterating its “buy” call on CapitaLand Commercial Trust (CCT), following news of its divestment of Wilkie Edge to construction and property development firm, Lian Beng Group, for a consideration price of S$280 million (RM870 million).

The research house’s target price on the counter remains unchanged at S$1.90 at this stage — as it believes potential distribution from divestment gains and enhanced contributions from the redevelopment of Golden Shoe Carpark will mitigate the loss of income from the group’s divested properties.

In a Tuesday report, analyst Vikrant Pandey noted CCT’s sale of Wilkie Edge is in line with its management’s strategy to regularly evaluate and rejuvenate its portfolio.

Assuming that all net proceeds from the sale, which is valued at approximately S$76 million, is used to repay existing debt, Pandey projects that the trust’s gearing would decrease to 35.7%, from 38.1% previously.

Pro forma net asset value (NAV) will increase by 1.7% to S$1.76 per unit, while the pro forma distribution per unit (DPU) will decrease by 1.5% to S$8.94 per unit, he adds.

“CCT recently completed the divestment of a 50% stake in One George Street for S$591.6 million to insurer FWD Group. We believe the back-to-back sale of Wilkie Edge and One George Street is to facilitate the redevelopment of Golden Shoe carpark that is targeted for completion in 2021,” says Pandey, who also thinks there could be some distribution from these two transactions as the trust’s management looks to manage loss of income from these properties.

Separately, Religare analyst Tata Goeyardi says he is impressed by Wilkie Edge’s divestment price, which translates to a net property income (NPI) yield of 3.39%.

He projects that after factoring in the additional impact of CCT divesting its 50% stake in One George Street, the trust’s net gearing will be lowered to 32%.

“Post these two divestments, CCT will have a debt headroom of about S$1.7 billion, before reaching the 45% limit. Given the market talk that CapitaLand is considering to buy Asia Square Tower 2, we reckon CCT could potentially be acquiring this stake in a joint-deal with its sponsor,” comments Goeyardi in a report on Tuesday.

Should the said office building be sold at a similar price, as QIA’s purchase of Asia Square Tower 1 at S$3.4 billion, the analyst thinks CCT could afford a 50% stake without the need to issue new units.

“Assuming a NPI yield of 3% (the yield at which QIA previously acquired at), coupled with CCT’s current average debt cost of 2.6%, this deal could be yield-accretive if the potential acquisition is paid with debt,” he adds.

As at 10:01am, units of CCT were trading 1 Singaporean cent higher at S$1.68. — theedgemarkets.com.sg

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