CapitaLand Commercial Trust’s sale of Twenty Anson for S$516m

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CCT_Twenty-Anson

CapitaLand Commercial Trust (CCT) announced this week their sale of Twenty Anson, at 20 Anson Road Singapore 079912, to an unrelated third party.

At a price of S$516 million, the property is 19.2% above the property’s valuation of S$433 million.

The sale price represents S$2,503 psf on the building’s net lettable area of approximately 206,000 sqft.

This represents a sizable profit to CCT, considering the purchase of the property was less than 10 years ago, in 2012.

On 22 Feb 2012, CCT announced the acquisition of Twenty Anson which was valued at S$431 million.

Even though the absolute profit amount is sizable at S$83 million, the annual return since 2012 isn’t much at just 2.9%, or just meeting inflation.

With rental returns and leverage taken into account, the returns is likely to be higher than 2.9%, though not gangbusters.

Twenty Anson is a 20-storey prime office building in Tanjong Pagar and has a Green Mark Platinum award. The development features a modern facade, column-free floor plates, a sky garden and a cafe.

The sale is exepcted to completed in 3Q2018.

Mechanics of the transaction

A 15% deposit will be placed by the buyer following the signing of the Sale and Purchase Agreement (SPA).

The balance will be paid to CCT on completion.

Salient terms of the SPA, prior to sale completion, are
1. No material damage relating to Twenty Anson
2. No compulsory acquisition relating to Twenty Anson
3. Purchase not receiving a reply to legal requiistions from the relevant authorities which materially adversely affects Twenty Anson

CCT intends to use the proceeds to repay debt and/or to fund growth opportunities.




Portfolio impact of Twenty Anson sale

On a pro-forma basis, the sale will benefit CCT’s NAV, with it rising from S$1.74 to S$1.76, as of 31 Dec 2017, as if the sale was completed on 31 Dec 2017.

The DPU of the REIT will remain unchaged at 8.66 Singapore cents, for the financial year ended 31 Dec 2017, as if CCT had completed the sale on 1 Jan 2017.

In CCT’s latest 1Q2018 quaterly financial results, Twenty Anson is shown to contribute only 3% of the portfolio’s net property income.

Twenty Anson net property income

The property’s gross revenue at S$4.6m is one of the lowest in the portfolio, far behind Asia Square Tower 2 (AST2) at S$25.3m, CapitaGreen at S$23m and Capital Tower at S$18.0m.

Net property income is similarly low at S$3.5m, comapred to AST2 at S$19.4m, CapitaGreen at S$19.1m and Capital Tower at S$14.0m.

On this note, CapitaGreen appears to be a fairly efficient building with NPI margins at 83%, compared to 77% for AST2 and 78% for Capital Tower.

Twenty Anson’s valuation of S$433m as of 31 Dec 2017 is the second lowest in CCT’s portfolio, above Bugis Village’s valuation of S$44m, but lower than AST2 at S$2.09b, Raffles City’s 60% share at S$1.96b and CapitaGreen at S$1.62b.

Twenty Anson’s low occupancy rate

One reason I infer from the slides as to why CCT sold Twenty Anson is its low occupancy rate, vis-a-vis other properties in the portfolio.

At 94.3%, Twenty Anson has the second lowest occupancy rate in the portfolio, higher only than AST2 at 90.8%.

All the other properties in CCT’s portfolio have occupancy rates higher than 98%, a testament to the companies ability to drive leasing performance.

Twenty Anson occupancy rate

CCT comments

Mr Kevin Chee, CEO of CCT’s manager, said: “The divestment of Twenty Anson is in line with CCT’s proactive strategy to reconstitute the trust’s portfolio and optimise returns for our unitholders. This transaction will unlock value and enhance the trust’s financial flexibility.

“We will continue to explore opportunities to enhance our portfolio as demonstrated by our ongoing development of CapitaSpring in Singapore and acquisition of Gallileo in Frankfurt, Germany.”

Post sale portfolio

Post the sale of Twenty Anson, CCT’s portfolio will consist of 10 properties in Singapore’s CBD and the banking district in Frankfurt, Germany.

The small size of Twenty Anson is unlikely to make a dent in the assets and liabilities of CCT. The upside to the REIT is that they will be able to recycle the capital into higher yielding assets.

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