Company Name: ASCOTT RESIDENCE TRUST
| Research House: UOB KayHian | Price Call: BUY | Target Price: 1.30 |
Stock Name: Capitaland
Company Name: CAPITALAND LIMITED
| Research House: UOB KayHian | Price Call: BUY | Target Price: 3.70 |
Good Morning,
We believe that the ART-CapitaLand bundled deal is mutually beneficial for both the parties. From ART's perspective, as it is not permitted to undertake the redevelopment, Capitaland becomes the choice partner for unlocking value and redeveloping the property with Ascott Raffles Place and Ascott Guangzhou replacing Somerset Grand Cairnhill's lost income stream. From CapitaLand's perspective, it obtains a prime piece of land at a very reasonable rate between S$1,100 and S$1,200psf that could yield over 25% in development margins. Although we believe that ART could have fetched an even better price for Somerset Grand Cairnhill through an open tender process, the conditional agreement to acquire the newly-completed serviced residences at a set price now would not have been agreeable to other potential bidders. We maintain BUYs on ART and CapitaLand with raised target prices of S$1.30 (from S$1.25) and S$3.70 (from S$3.65) respectively. Key Highlights are as follows. Do let Vijay or me know in case you need any further details.
Ascott Residence Trust, CapitaLand: A Win-win Deal
Whats New?
· Ascott Residence Trust (ART) entered into a bundled transaction with CapitaLand that involves the following:
a) The divestment of its serviced residence Somerset Grand Cairnhill (SGC) Singapore to CapitaLand for S$359m. The divestment is at 32% above valuation at an implied exit EBTIDA yield of 3.8% translating to a divestment gain of $87m.
b) Acquisition of Ascott Raffles Place Singapore (S$220m) and Ascott Guangzhou in China (S$63.3m) from Capitaland using the proceeds from the sale of Somerset Grand Cairnhill.
c) Conditional agreement to acquire the New Cairnhill Serviced Residence for S$405m that will be built together with high-end residential units for sale by CapitaLand as part of the redevelopment of Somerset Grand Cairnhill Singapore. The property is expected to be delivered to ART in 2017.
The transaction is expected to be completed by 3Q12 (EGM for shareholder approval to be held on 27 Jul 12).
· A win-win deal. We believe the deal is mutually beneficial to both the parties. From ART's perspective, as it is not permitted to undertake the redevelopment of Somerset Grand Cairnhill Singapore due to restrictions under the Property Funds appendix, Capitaland becomes the choice partner for unlocking value and redeveloping the property on its behalf. Although we believe that ART could have fetched an even better price through an open tender process, the conditional agreement to acquire the newly-completed serviced residences at a set price now would not have been agreeable to other potential bidders. Furthermore, Ascott Raffles Place and Ascott Guangzhou are quality assets that would support the DPU levels since income stream from SGC has now been lost. From CapitaLand's perspective, it obtains a prime piece of land at a very reasonable rate between S$1,100 and S$1,200psf that could yield over 25% in development margins. Also, the divestment price of Ascott Raffles Place and Ascott Guangzhou are in line with latest market valuations.
Ascott Residence Trust (Maintain BUY with an increased target price S$1.30 (from S$1.25) raising our 2013-14F DPU forecasts by 3% for FY13/14 to factor in the transactions. The DPU accretion from proposed acquisition of new Somerset Grand Cairnhill Residence (expected to be injected in 2017) hasn't been factored in yet as we await its funding structure details. Our target price is based on our two-stage dividend discount model (required rate of return: 8.3% and terminal growth rate: 2.0%).
· Acquisition yield accretive to the existing portfolio for ART. The agreed acquisition prices for the properties are derived based on the average valuations conducted by the two independent valuers. The proposed transaction is yield accretive representing a yield enhancement of about 4% for FY2011 (on a pro forma basis). The implied EBITDA acquisition yield for the properties are Ascott Raffles Place (4.1%), Ascott Guangzhou (5%) and New Cairnhill Serviced Residences (4.5%).
· Financing planned through a combination of debt and perpetuals. ART plans to fund the acquisition through a combination of debt (S$238.4m) and perpetual securities (S$100m) which will be done closer to the delivery (2017). ART's gearing immediately after the transaction will fall marginally to 39.2% from the existing 40.8%. The gearing will however increase to 43.2% if we take into account the acquisition of New Cairnhill Serviced Residences in 2017. If the entire transaction is fully funded through debt, gearing will increase closer to 46% (slightly more than its indicated comfortable levels of 45%).
· Positive tilt in balance towards Asian serviced residences. We believe the acquisition tilts the balance in favour of Asian serviced residences which are its key growth markets. Once the entire transaction is completed, Asia would account for about 65% of its overall portfolio (59% previously) with Europe accounting for the rest. Singapore, its key Asian serviced residence market, will account for the bulk 30% of the enhanced portfolio. The transaction would also enhance ART's NAV by 4.4% to S$1.42/share.
CapitaLand (Maintain BUY with a raised target price of S$3.70) We raise CapitaLand's RNAV by 1.2% to S$4.33/share (S$4.28 previously) to factor in these transactions. We maintain BUY with a raised target price of S$3.70 (from S$3.65) pegged at 15% discount to its revised RNAV.
· Marginal RNAV impact of 1.2%. CapitaLand is expected to realise a net gain of S$98.9m for 2012 from the transaction through a net gain of S$51.4m from divestments and S$42.7m through ART's gain from divestment of Somerset Grand Cairnhill. We expect an overall RNAV net profit contributions of S$145m from the proposed redevelopment of Somerset Grand Cairnhill. The new integrated development has a gross floor area (GFA) of 466,429 sf, comprising 40% for hotel use and 60% for residential use. The total land cost is estimated to be between S$1,100 and S$1,200 psf taking S$160-180m of premiums payable for a fresh 99-year lease and for the change of use to an integrated development with GFA intensification. The overall impact to CapitaLand's RNAV from the transaction is a 5 cents/share accretion (1.2%).
No comments:
Post a Comment