CapitaLand (KimEng)

Event:
A consortium comprising CapitaMalls Asia (CMA), CapitaMall Trust (CMT) and CapitaLand has secured a White Site at Boon Lay Way for $969m, or $1,012 psf ppr. CapitaLand will lend its expertise on the office component while CMA will lead the design for the retail portion. With this acquisition, the CapitaLand group of companies will have a strong foothold in Jurong Gateway, right in the commercial heart of the Jurong Lake District. Maintain BUY.

Our View:
The Jurong Gateway (JG) site will have a total GFA of 957,781 sq ft, 40% of which will be for office use and 60% for retail. The stakes held by CMA, CMT and CapitaLand are 50%, 30% and 20%, respectively. The total development cost is estimated to be around $1.5b.

At first glance, the bid appears aggressive, as it is nearly 55% higher than the psf price paid for the adjacent site in June last year. A closer analysis, however, shows the JG site to be superior in location and with fewer site constraints. The consortium is targeting retail rents of $16-18 psf pm and office rents of around $7-8 psf pm. This should translate to yield on cost of about 6% for both components.

With the acquisition, the CapitaLand group of companies will have its foothold strengthened, not just in the Jurong Lake District, but also in western Singapore. In addition, it will gain exposure to quality office space in Jurong, which will be sought after in the future when the district matures as a regional commercial hub.

Action & Recommendation:
While the targeted 6% yield on cost for the JG site is attractive, the actual impact on CapitaLand’s RNAV is minimal. The asset, when completed, is likely to be eventually monetised and sold to CMT and CCT. We have trimmed our target price to $4.14, pegged at par to RNAV after adjusting for the share prices of the listed subsidiaries. Maintain BUY.