DBS maintains ‘Buy’ rating on CapitaLand’s office REIT after Wilkie Edge divestment

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In the wake of a recently announced divestment by the REIT, DBS Investment Research has maintained a ‘Buy’ rating on CapitaLand Commercial Trust citing the property sale price’s substantial premium to book value.

CapitaLand Commercial Trust announced after the close of trading on 3 July that it was divesting the 12-storey property known as Wilkie Edge to Lian Beng (8) Pte Ltd for a sale consideration of SGD280 million (USD202 million).

The consideration translates to about SGD1,812 per square foot based on the building’s net lettable area, and represents a premium of 39.3% above the property’s December 2016 valuation of SGD201.0 million.

The sale price also represents a gain of 53.3% over Wilkie Edge’s original purchase price of SGD182.7 million in 2008, and the divestment is expected to be completed in September 2017.

As such, the REIT is expected to realise a net divestment gain of SGD76 million from the transaction.

“Assuming all the net proceeds from the sale is used to repay existing debt, [CapitaLand Commercial Trust’s] aggregate leverage as at 31 March 2017 would decrease from 38.1% to 35.7%”, said Lynette Leong, CEO of the REIT’s manager.

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Ridzwan Rahmat has been analysing Singapore-listed REITs and business trusts, since 2008. For disclosure purposes, Ridzwan is currently vested in Mapletree Greater China Commercial Trust, Mapletree Industrial REIT and Mapletree Logistics Trust.

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