Bulk of cash calls from Capitaland's REITs completed

CapitaCommercial Trust (CCT, 34% owned by CapitaLand) has announced a 1 for 1 rights issue to raise approximately S$828mn. Approximately 1.4bn rights shares will be offered at S$0.59 per rights share (44% discount to last traded price). CapitaLand (CAPL) will subscribe to its pro rata entitlement (~S$282mn). Our current forecasts are already factoring in a S$1bn cash outlay for funding of sponsored REITs (including the previously announced CMT equity raising).

CCT revalued its portfolio downward by 10.1% to S$6.0bn. On an individual asset basis, valuation declined between 3-16%. Cap rates used by valuers remained largely unchanged. These revaluations will be reflected in CAPL’s 2H09 reported earnings (-S$232mn asset revaluation at associate level), however will have no impact on our core earning forecasts. We expect the downward revision of CCT’s portfolio will be offset by an upward revaluation of Orchard Ion. Our forecasts account for -15% decline in CAPL’s sponsored REITs’ NAVs.

CAPL’s two largest REITs, CMT and CCT, have now come back to the market for equity. We are confident that REIT balance sheets are now strong enough to withstand this downturn and that they will not need to return to the market for equity. We maintain our Buy rating on CAPL and PO of S$4.50/share (10% premium to RNAV of S$4.10/share). CAPL remains our preferred exposure to the Singapore property sector as we believe it has the greatest potential to re-rate in an upturn.

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