CapitaLand

OCBC on 9 Jul 2012

CapitaLand (CAPL) announced that it would acquire, for S$359m, Somerset Grand Cairnhill Singapore (SGCS) from Ascott Residence Trust (ART). SGCS would be redeveloped into a mixed serviced residences and residential project, with ART expected to re-acquire the serviced residences component for S$405m in 2017. In addition, ART would acquire two assets, Ascott Raffles Place and Ascott Guangzhou, from CAPL for S$220.0m and S$63.3m, respectively. From these transactions, CAPL is expected to book combined gains of S$98.9m in FY12. We project for SGCS’ residential units to be launched in 1Q13 at S$2.8k psf, and estimate a net present value accretion of S$150m (S$0.03 per share) to RNAV. Maintain BUY with an increased fair value estimate of S$3.25 (25% discount to RNAV) versus S$3.21 previously, mostly due to accretion from this transaction and higher valuations for listed entities

To acquire and redevelop Somerset Grand Cairnhill Singapore
CapitaLand (CAPL) announced that it would acquire, for S$359m, Somerset Grand Cairnhill Singapore (SGCS) from Ascott Residence Trust (ART). SGCS is expected to be redeveloped into a mixed serviced residences and residential project, and both parties have also entered into a put and call option for ART to acquire the serviced residences component for S$405m in 2017.

Expected to book S$98.9m in gains
In addition, ART would acquire two assets, Ascott Raffles Place and Ascott Guangzhou, from CAPL for S$220.0m and S$63.3m, respectively. From these transactions, CAPL is expected to book a combined gains of S$98.9m in FY12, including S$51.4m from the Raffles Place and Ascott divestments, and S$42.7m for its proportionate stake in ART’s divestment of SGCS.

Estimated RNAV accretion of S$0.03 per share
SGCS would be redeveloped into a mixed development with serviced residences (187k sq ft GFA) and residential (280k sq ft GFA) components at an estimated development cost of S$774m, including a S$180m redevelopment charge. The serviced residences (371 units) would be divested to ART for S$405m in 2017. We project for the residential component (200-250 units) to be launched in 1Q13 at S$2.8k psf, based on latest transactions from Urban Suites. This being so, we estimate a gross profit margin of 32% and a net present value accretion of S$150m (S$0.03 per share) to RNAV for this project.

Maintain BUY at higher S$3.26 fair value estimate
We view this transaction favorably as management continues to recycle capital and optimize use of assets. In our view, while CAPL’s Chinese exposure would be a key driver going forward, the group’s diversified exposure points to accretive opportunities across sectors and geographical regions ahead. Maintain BUY with an increased fair value estimate of S$3.25 (25% discount to RNAV) versus S$3.21 previously, mostly due to accretion from this transaction and higher valuations for listed entities.