- The sale of 30% stake of PWC Building by CapitaLand to DBS Group values the office building at SGD1,406 psf.
- We maintain our BUY recommendation on CapitaLand with an unchanged TP of SGD4.20.
- We think the divestment is mainly to unlock value and recycle its capital into higher yielding projects.
- There will be no material impact on our RNAV estimates given that the office building constitute only a small portion of the company’s overall portfolio.
What happened?
- CapitaLand (CAPL SP, BUY, TP: SGD4.20) announced its intention to divest its 30% stake of PWC Building for a consideration of SGD150m, which translates to SGD1,405 psf.
- The transaction will take place with DBS Group (DBS SP, BUY, TP: SGD23.30), which owns the remaining 70% stake of the office building.
- PWC Building is a 99 year leasehold office building at Cross Street, with PricewaterhouseCoopers as its anchor tenant.
Unlocking value to achieve its full potential.
- We think that this is part of the company’s core strategy to unlock value from its older assets and recycle its capital into higher yielding projects such as developing properties in emerging markets.
- We note that the divestment of PWC Building will not have any material impact to our target price.
- Based on our RNAV estimates, the building is valued at SGD127m. The ensuing SGD23m surplus is not material as CapitaLand requires a surplus of SGD43m to increase its RNAV by 1 SG-ct.
Why is this still our TOP Pick within the Singapore property sector?
- Given that the local property scene will remain sluggish in the near to mid-term, we favour property counters with high exposure to the overseas market.
- As for CapitaLand, we like the fact that 94% of its China exposure by value is in Tier 1-2 cities, which limits downside risks.
- We are keeping our eyes on more synergistic benefits related to its “One CapitaLand” strategy – with a single listed developer integrated across asset classes, delivering a sustainable ROE of 8-12%.
- Management reiterated that it will achieve this via having 25% trading properties and 75% investment properties in allocated assets.
- Reiterate BUY, with an unchanged TP of SGD4.20.
(Ong Kian Lin, Ivan Looi)
Source: http://www.rhbgroup.com/
