• Fulfilled CP on Danga Bay acquisition
• LT project over 10-12 years
• Execution dependent on mkt conditions

Fulfillment of conditions precedent to acquire Danga Bay

CapitaLand (CAPL) reported that the conditions precedent to acquire Danga Bay A2 Island in Iskandar, Johor Malaysia, has been fulfilled. The group is expected to take a 51.0% stake in the project, alongside Malaysia’s Iskandar Waterfront Holdings (40.0%) and Temasek (9.0%). To recap, the acquisition site will be located in Danga Bay, one of the five flagshop zones in Iskandar earmarked for special development, which is 10km from the Johor Causeway to the north-east and 29km from Legoland and EduCity in the west. The site lies on 71.4 acres of freehold land known as A2 Island in Danga Bay, which is expected to be developed into a mixed project comprising residential homes, retail malls, offices and serviced residences with an estimated total GFA of 11m sq ft and GDV of S$3.2b.

Project to be executed in phases over 10-12 years according to market conditions

It was earlier announced that the JV will contribute RM1.05b (~S$404m) in equity with the reminder financed through debt and sales proceeds, and CAPL’s share of the equity is expected to be RM535.5m (~S$206m). The group has reiterated that this is a long term project that will be executed in phases over the next 10 to 12 years according to market conditions. We understand the group’s earlier plan was to sell and build ~900 residential units but, given the slow sales in Iskandar now, we believe it will be challenging to raise meaningful pre-sales proceeds over the nearer term to fund development costs, and the development plan is likely to be under review. That said, we have an overall neutral view on this acquisition; while near term headwinds will likely prevail, this acquisition will give CAPL a meaningful foothold in the Iskandar region over the long term and has fairly limited impact on the group’s balance sheet (<2% of the group’s equity). Maintain BUY with an unchanged fair value estimate of S$4.07 (25% discount to RNAV).

Source: OCBC Research - 29 Jun 2015