CCT – UOBKH

Sale of StarHub Centre – building up for acquisitions

What’s New

Sale of StarHub Centre. CapitaCommercial Trust (CCT) has sold StarHub Centre to a subsidiary of Frasers Centrepoint Ltd for S$390m. This amounts to a price of S$1393psf of Net Lettable Area (NLA) of

280,069sf.

Stock Impact

Divested at a gain of S$109.1m, though below expectations. The selling price is 11% below our estimate of S$1560psf. However, the price is 45.5% or S$122m higher than the valuation of S$268m as at 31 Dec 09 and 42.5% or S$123.3m higher than its valuation of S$266.7m as at 30 Jun 10. The sale price is also 5.1% above the highest valuation achieved at S$361.5m as at Jun 08. The estimated gain from the sale is S$109.1m or about 3.8 cents/share. This is 37% below our previous estimate of a gain of 6 cents/share.

Minimal impact on net property income. StarHub Centre currently accounts for about 4% of CCT’s net property income. The impact on CCT’s 2010 income will be minimal as occupancy is already at a low 68% and the completion of the sale will be close to end-3Q10. Potential acquisitions are likely to offset the impact on 2011 and 2012 earnings.

Maintaining focus on core portfolio. This sale comes on the heels of the sale of Robinson Point, another non-Grade A office building in Jan 10 for S$182.5m. CCT has opted not to participate in a JV or to develop the property itself so as to avoid exposure to the non-core residential segment. The sale will enable CCT to divest its non-core assets to maintain focus on Grade-A office developments.

Watch out for acquisitions. Net gearing will decrease from 29.1% to 25.5%, which gives CCT about S$700m debt headroom to fund Grade-A office acquisitions in Singapore assuming a target gearing of 37.5% (based on the target range of 30% to 45%).

Beneficiary of the office sector turnaround. CCT has the largest portfolio of prime office properties in Singapore, deriving about 72% of its value from this segment. The office segment is deep in value relative to other sectors with prime office rentals still at a 57% discount to the peak levels vs 12%, 15% and 19% discounts in the prime residential, retail and industrial segments respectively.