RHB Bank Singapore and DBS Group Research have maintained their “buy” calls on CapitaLand Integrated Commercial Trust C38U (CICT) after the REIT announced that it divested 21 Collyer Quay to an unrelated, unnamed third party for $688 million on Nov 12. Both RHB and DBS have kept their target prices at $2.30.
21 Collyer Quay is a 21-storey office building located in Raffles Place with a lease of 999 years. It is currently fully leased to WeWork Singapore for a seven-year term starting December 2021.
According to CICT’s announcement, the consideration was in line with the property’s latest valuation of $688 million as at Oct 31. The amount also represents a 6% premium to its valuation of $649 million as at Dec 31, 2023.
The divestment was largely anticipated by the RHB team while the DBS team likes that the sale will derisk any exposure to WeWork, which is currently the second-largest tenant in CICT’s portfolio.
At its divestment price, the exit yield is expected to be slightly below 3.5%, notes RHB. With its current debt cost at 3.6% per annum, the team expects the proceeds to be used for debt repayments in the near term. It also expects the proceeds to be neutral to slightly accretive to CICT’s distribution per unit (DPU).
Meanwhile, the DBS team estimates the exit cap to be at approximately 3.25%, and below the current average interest cost of 3.5%.
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CICT’s post-divestment gearing on a pro-forma basis is expected to fall to 38.3% from 39.9% as of June 30.
To DBS, deleveraging “could mean more bullets” for asset enhancement initiatives (AEI) and redevelopment when the opportunity arises.
At the same time, RHB believes that CICT is likely to divest another asset - its 45% stake in Citadines Raffles Place - before the end of the year.
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“We believe the proceeds would give CICT debt headroom to acquire [a] balance 55% stake at CapitaSpring next year with minimal or no additional equity raising,” says RHB, adding that the market is likely to react positively while a greater clarity on the interest rate outlook is a “key catalyst”.
As at 4.20pm, units in CICT are trading 1 cent lower or 0.508% down at $1.96.
