The Motley Fool

1 Piece of Great News for CapitaLand Commercial Trust Shareholders

CapitaLand Commercial Trust (SGX: C61U) has proposed the purchase of a 94.9% interest in a German office building in Frankfurt for a consideration price of 251.5 million euros (S$387.1 million).

The trust has already closed the books for the private placement used to fund the equity stake in the purchase. Here are the most important details of the acquisition that investors should know.

Details of the property

The acquisition target is a multi-tenanted office building in Frankfurt, Germany, near Frankfurt airport office submarket. The agreed transaction price is the lower of two independent valuations by CBRE and Cushman & Wakefield, which valued the property at 265.0 million euros and 267.3 million euros, respectively.

Based on the agreed property value of 265 million euros, the property has a current net property income yield of 4.0%.

Funding the acquisition

The managers of the REIT said the acquisition will be financed through a combination of debt and equity. The REIT recently closed the books on a private placement, raising S$220.0 million.

Around S$216.7 million of the funds raised will be used to partially finance the acquisition. Based on these numbers, the acquisition is funded by 56% equity and 44% debt.

As the debt-to-asset ratio of the new acquisition is higher than the REIT’s last reported aggregate leverage of 34.8% (as of 30 June), the acquisition could increase the REIT’s gearing level slightly.

Why it’s great news

There is certainly much to like about the latest acquisition. 

  • For one thing, the property is freehold and in a good location. The Frankfurt airport office submarket is a thriving business centre with a growing occupier base.
  • The purchase is also expected to be DPU-accretive. Based on pro forma calculations, the acquisition would increase 2019 first half DPU by 1.0% to 2.5%.
  • The building has an occupancy rate of 90%, which means there is potential upside from higher occupancy.
  • The private placement issue price of S$2.095 per unit was only a slight discount of 3.7% to volume-weighted average price on 17 July, the market day on which the placement was agreed. Considering current high REIT valuations, the fact that CapitaLand Commercial Trust’s placement was five times oversubscribed showed that the REIT had strong backers who were willing to pump in the capital even amid these current valuations.
  • The issue price was also 15.7% above book value per unit after taking into account the next round of distributions. As such, the placement should be immediately accretive to book value per unit.

The Foolish roundup

The latest announcement and private placement is certainly great news for current unitholders of Singapore’s largest commercial REIT. Besides the positive DPU impact of the property, the placement of new units at a price above book value (and only a tiny discount to market prices) will also improve the REIT’s net asset value per unit.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of CapitaLand Commercial Trust. Motley Fool Singapore contributor Jeremy Chia does not own shares of any companies mentioned.