CIMB Research positive on sale of Battersea commercial assets

Construction cranes are seen in operation around Battersea Power Station in the Nine Elms area of London, Britain, October 25, 2017. - Reuters filepic

KUALA LUMPUR: CIMB Equities Research is positive on SP Setia and Sime Darby Property’s sale of the Battersea Power Station (BPS) Phase 2 commercial assets to PNB-Kwasa International 2 Ltd (JVCo) for a £1.58bil (RM8.35bil).

“Both developers will be able to monetise the asset and focus on the remaining development of BPS. The acquisition price tag of £1.58bil is fair, in our view, and similar to the initial estimated gross development value (GDV) for the phase 2 commercial assets by the developer,” it said on Tuesday. 

The total estimated GDV for Battersea Power Station Phase 2 residential and commercial assets was £2.3bil. 

“The financial implications of the disposal are expected to be neutral until the asset delivery and leasing have been substantially completed,” it said.

CIMB Research said work on the Battersea Power Station building itself was progressing well and was scheduled to complete in 2020. The development will also benefit from the opening of the Northern Line underground extension in 2020.

To recap, PNB and the EPF signed a heads of terms to initiate preliminary negotiations to purchase the Phase 2 Commercial Assets for an estimated consideration of £1.61bil in January 2018. 

The purchase price is subject to further due diligence and on the basis that the development is completed and fully tenanted.

“We expect the deal to be earnings neutral to SD Property (Add, TP RM1.29) and SP Setia (Hold, TP RM2.25), as the deal is done at the Battersea Project Holding level and the proceeds will likely be utilised for the remaining project phases in Battersea.

“Although we expect overall sector’s earnings growth to be higher in CY19F vs. a decline in earnings growth in CY18F, we see unfavourable macro indicators, such as rising interest rate environment, slowing GDP growth and unfavourable government policies dampening consumers’ buying sentiment. We expect 2019 to be another unexciting year for the property sector,” it said.