What the sale of OGS means for CapitaLand Commercial Trust

It could translate into a 3.2% property yield.

CapitaLand Commercial Trust (CCT) recently announced that it has sold 50% of One George St (OGS) to insurer FWD Group.

According to CIMB, the deal is based on an agreed value of OGS of $1.18b or $2,650psf, which is 16.7% higher than its past valuation. This translates into an annualised 3.2% net property yield, pushing CCT to expect and recognise a gain of $84.6m.

"Sale proceeds are expected to be used for either repaying borrowings or to fund growth opportunities. Assuming repayment of loans, its gearing is likely to decline to 33.6% from the present 38.1% as at Dec 16," CIMB said.

It added, "We see this capital-recycling move as positive for the trust. The increased debt headroom as well as the cash proceeds will increase the group’s financial flexibility, including funding growth opportunities, such as the potential redevelopment of Golden Shoe Carpark. Assuming a post-sale gearing target of 40%, CCT has potential debt headroom of c.$850m."