CapitaLand to boost ART's Asian exposure to almost 40%

25,999sf GFA will be added to CapitaLand's residential landbank.

According to DBS Vickers, ART and Capitaland have announced a series of transactions that will boost ART’s exposure in Asia while unlocking value from its asset in Singapore. ART will sell the Somerset Grand Cairnhill site to Capitaland for redevelopment, with a put and call option to buy the new redeveloped serviced component upon completion as well as purchase 2 properties in China and Singapore from its parent.

"The deal worth S$688m would boost ART’s exposure in the higher growth Asian markets of Singapore and China to close to 40%, as well as offer immediate positive earnings impact from the stabilised properties. From Capitaland’s perspective, it will add 25,999sf GFA in the prime Orchard Road location to its Singapore residential landbank."

"In terms of impact on earnings and TP, the transaction will lift ART’s FY12-13 DPU by c1% initially with more earnings upside from the new serviced residence component when completed in 2017. In all, we reckon this exercise will lift ART’s book NAV by 4.4% to S$1.42 and raise TP from S$1.14 to S$1.29. Post transaction and a small proposed perpetual security issue, ART’s gearing would be still manageable at 43.2%. With Capitaland’s larger asset base, the deal should boost FY12 earnings estimates to S$684.4m and raise TP marginally to S$3.39, premised on a 35% discount to its asset backing," DBS added.

"The deal also provides earnings downside protection through the fixed rent component as well as earnings upside from the variable rent formula. We maintain our Buy call on Capitaland for its diversified business exposure."