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Author: simonsg   |   Latest post: Mon, 8 Aug 2022, 9:09 AM

 

CapitaLand Integrated Commercial Trust - Buying Into An Upcycle; Acquiring 79 Robinson Road for 2.9% DPU Accretion

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  • CapitaLand Integrated Commercial Trust (SGX:C38U) has partnered with CapitaLand Open-End Real Estate Fund to acquire 79 Robinson Road in Singapore for S$1.3b from Southernwood Property (an special purpose vehicle owned by sponsor CapitaLand Investment (SGX:9CI) and Mitsui & Co/ Tokyo Tatemono). CapitaLand Integrated Commercial Trust will pay S$869m for a 70% stake, which will be funded by debt (62%) and proceeds from the divestment of JCube, implying a +2.9% DPU accretion.
  • We are positive on the deal, against a strong office rental upcycle, with contribution from this segment set to rise to 41% (from 38%) of CapitaLand Integrated Commercial Trust’s enlarged S$24.2b AUM.
  • We see improving fundamentals, with further acquisition upside, backed by its sponsor’s Singapore pipeline.
  • CapitaLand Integrated Commercial Trust's valuations are compelling at 5.2% FY22E dividend yield and 1.1x P/B vs history and peers.

Quality Asset, Resilient Tenancies

  • The property is a 29-storey, ~520k sf NLA Grade A office tower completed in Apr 2020 and rated BCA Green Mark Platinum, with a remaining land tenure of 45 years. It is in Tanjong Pagar, and will be connected to the MRT station by an upcoming underground link, and is 500 metres from two new MRT stations on the Thomson East-Coast Line.
  • It had 92.9% committed occupancy as of end-Dec 2021 and a 5.8-year WALE, which is backed by 22 reputable tenancies, with the top three - Allianz, Equinix and The Boston Consulting Group – accounting for 48% of its gross rental income.

Valuation Undemanding at 4% NPI Yield

  • CapitaLand Integrated Commercial Trust's management is eyeing a higher place in the Tanjong Pagar office precinct.
  • We forecast Grade A office rents to rise 7% y-o-y by end-2022, or 12% over the next two years, with upside from tight supply.

Sound Balance Sheet, Strong Deal Momentum

  • We expect CapitaLand Integrated Commercial Trust’s gearing to rise from 37% to 41% post-deal, with S$4.5b in debt (COE: 5.9%, LTG: 1.5%).

Source: Maybank Research - 27 Mar 2022

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