Singtel – Implications of Comcentre divestment?
Singtel will divest Comcentre to a joint venture (JV) company and hold a majority stake
We estimate 2-3% benefit to Singtel’s earnings and see more divestments ahead.
Maintain BUY with unchanged TP of S$3.13. Holding Company discount of 38% is too high compared to 21% historical average.
Singtel will divest Comcentre to a joint venture (JV) company with the appointed developer and hold a majority stake. Singtel has shortlisted two developers from the first phase of the tender and expect to close the tender process in March and make the final appointment by May. The total cost of development, including land costs, is estimated to be in excess of S$2 billion. As the anchor tenant of the new development, Singtel will occupy around 30% of the space, with the remaining space leased out to tenants. This will contribute a recurring income stream for Singtel in the long term.
Details on the new building which might take ~3-years to be completed. The new Comcentre is expected to have a total gross floor area of over 110,000 square metres comprising Grade A office buildings, a retail component and the Singtel’s existing Orchard Exchange, which houses critical telecom infrastructure. Singtel has also obtained in-principle approval from the Singapore Land Authority to extend the lease on all the lots that make up Comcentre to 2089. The redevelopment is expected to be completed at the end of 2028.
We estimate 2-3% benefit to Singtel’s earnings while making the company asset lighter. We assume Singtel to have a 51% stake in the JV and get 30% of the space for free. With no grade A office building in Orchard currently, we assume monthly rental rate in 3-years to be S$12-15 per sq ft and cap rate of 4% based on inputs from our property team. This could lead to an additional pre-tax earnings of S$48m-S$60m and the company can crystallize the value of the building later.
Our estimates of rental income from the new building when ready
| GFA | sqft | 1,184,040 | ||
| NLA | sqft | 1,006,434.00 | ||
| Rental | S$ psf / mth | 12 | 15 | |
| Revenue | S$’m | 144.93 | 181.16 | |
| EBITDA | S$’m | 94.20 | 117.75 | |
| Cap Rate | (%) | 4% | 4% | |
| Fair value | S$’m | 2,355 | 2,944 | |
| Value psf | 2,340 | 2,925 | ||
Source: DBS Bank
This is a part of series of divestments planned by Singtel. As per media news, Singtel has lso appointed an investment bank Moelis for the divestment of its loss-making unit Amobee. Singtel is also keen to sell its North American business of Trustwave.
We maintain BUY on Singtel with unchanged TP of S$3.13 .Singtel’s holding company discount of 38% is quite high compared to its historical average of 21% over the last 7-years.