DBS: CapitaLand’s acquisition of Ascendas-Singbridge offers ‘myriad of positives’

CapitaLand construction site in Ho Chi Minh City, VietnamCapitaLand construction site in Ho Chi Minh City, Vietnam

CapitaLand’s acquisition of Ascendas-Singbridge, due to be completed by end-June, will herald a “new era of growth,” DBS said in a note Monday. The bank raised its forecasts for the group.

“We see a myriad of positives and see the combined entity emerging stronger financially and with an operational scale that puts it among the largest real estate managers globally,” DBS said.

Management has set a strategy to divest around S$3 billion worth of properties annually, DBS noted.

“We believe that its managed REITs, which are trading at an average implied yield of 4.9 percent, are poised to deliver accretive acquisitions,” the note said. “With ample debt-funded capacity and conducive capital markets, we believe that re-cycling properties into their REITs will be a win-win strategy.”

DBS pointed to completed business and science parks in Singapore as well as completed commercial and hospitality properties in China and Europe as likely assets for the REITs to acquire.

Also, the seven REITs managed by CapitaLand-ASB generate nearly S$191 million to S$197 million in annual management fees, DBS estimated.

DBS said CapitaLand could realize synergies from “in-housing” residential development for the master-plan development sites on ASB’s books, particularly the China-Singapore Guangzhou Knowledge City (CSGKC).

Phase one of CSGKC has developable gross floor area of around 434,000 square meters, with a memorandum of understanding for phase two already signed, DBS said.

The acquisition of ASB will also allow CapitaLand to “revisit” its India strategy, the note said.

“While CapitaLand’s experience in India has been ‘bitter-sweet’ over time, the group will inherit a fairly successful India franchise in ASB and Ascendas India Trust (AIT) which was the first mover in the IT Parks and most recently, in the Indian warehouse space,” DBS said. “In fact, AIT is one of the fastest-growing REITs with an in-built growth pipeline of developments and acquisitions.”

That’s projected to drive an around 14 percent compound annual growth rate for AIT’s distributions over 2020-2021 on an estimated 61 percent increase in gross floor area, DBS said.

“We believe that AIT can grow even faster if not constrained by capital. With a bigger entity, we hope to see more capital allocations into India over time,” the note said.

DBS kept a Buy call on CapitaLand shares, and raised its target price to S$4.00 from S$3.62.

Shares of CapitaLand ended Monday up 0.30 percent at S$3.29.

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