CIMB Research 2015-07-15: CapitaLand Mall Trust - Acquiring Bedok Mall. Maintain HOLD.

Acquiring Bedok Mall 

  • CapitaLand Mall Trust is acquiring Bedok Mall for S$780m (property yield of 5.1%). 
  • In addition to adding a well-located property to its portfolio, the purchase should increase the trust’s exposure to the resilient necessity spending segment. 
  • Pending more details from its circular, we reckon the deal should be mildly earnings accretive initially with more upside in the medium term given the good trading performance of the mall and reversion upside from its first rental renewal cycle in FY17. 
  • CMT offers limited upside to our revised DDM-based target price of S$2.25. 
  • We maintain our Hold rating. 

What Happened

  • CapitaLand Mall Trust (CMT) has proposed to purchase Bedok Mall from CapitaLand for S$780m or a total acquisition consideration (including transaction costs and other net assets) of S$795m. The purchase price of S$780m equates to $3,506psf of NLA or a property yield of 5.1%, based on the mall’s FY14 net property income. 
  • Bedok Mall is the first major shopping mall in Bedok and is located in the heart of the Bedok Town Centre. Opened in Dec 2013, the mall has 201 leases spread over 222,464sf of NLA. It is 99.3% occupied and enjoyed an average monthly shopper footfall of 1.4m (+22% yoy) in 1Q15. 

What We Think

  • The new purchase will complement CMT’s portfolio as it will expand AUM by 8% to S$11bn and boost the trust’s exposure to the necessity spending segment to 76.2% of portfolio (from 74.5%). 
  • More importantly, the mall is well located within the densely populated area of Bedok (resident population of c300,000 and growing) with numerous new residential projects such as Bedok Residences coming onstream. 
  • The property is also directly linked to the Bedok MRT station and bus interchange. 
  • While the full property and financing details have not been revealed (pending release of the circular), we reckon the purchase should initially be mildly accretive as the FY14 property yield of 5.1% is close to the trust’s implied yield of 5+%, with more uplift in the medium term based on the growing tenant sales seen in 1H15 as well as from possible reversion upside from its first rental renewal cycle from FY17 onwards. 
  • CMT will finance the purchase through an issue of 72m new units to CapitaLand (S$154.8m) and bank borrowings. This will raise the trust’s aggregate leverage to 37.2% and increase CapitaLand’s stake in the trust to 29.26%. 

What You Should Do

  • We have tweaked our FY16-17 DPU estimates by 0.3-1% after factoring in the transaction and assuming unchanged funding costs for the additional debt. Thus, our DDM-backed target is raised slightly to S$2.25
  • The trust is trading at FY15-16 yields of 5.3-5.4%. 
  • We maintain our Hold recommendation on the stock. 

(TAN Xuan, CFA; LOCK Mun Yee)

Source: http://research.itradecimb.com/