DBS Group Research 2015-07-15: CapitaLand - Asset Recycling At Work. Maintain BUY.

Asset recycling at work 

  • Bedok Mall divested for S$783m 
  • Recycling capital to generate higher returns; demonstration of management's ability to constantly realise value 
  • Maintain BUY, TP S$4.11 

Divestment of Bedok Mall to CapitaLand Mall Trust for S$780m. 

  • CapitaLand (CAP) announced the divestment of Bedok Mall for S$783m to its managed REIT, CapitaLand Mall Trust (CMT). The agreed price is close to the latest valuation of S$775m (by CBRE) as of 30th Jun’15. 
  • This transaction is expected to be conditional upon CMT unitholders’ approval, expected by 4Q15. 
  • The divestment price implies an exit per square foot (psf) price of c.S$3,500 and an exit yield of 5.1%, which we believe is attractive. 
  • CAPL will receive net proceeds of c.S$464m including 72m new units of CMT post repayment of existing debt. 
  • We understand that the group is also expected to reap net gains of c.S$30m from this divestment (based on latest reported valuation). 

Re-cycling capital; proceeds to be deployed to other opportunities. 

  • With the Bedok Mall having achieved a level of operational stability, we find this to be an opportune time to divest the property to CMT and re-deploy capital to other development projects with higher returns, keeping in mind the group’s longerterm target of 8%-12% ROE. 
  • In addition, CAPL can continue to partake in the growth of the mall through higher management fees and through its increased stake in CMT post acquisition. 

Maintain BUY, TP S$4.11, based on 20% discount to RNAV. 

  • We are maintaining our numbers, pending the sale post EGM. 
  • CAPL's ability to actively reconstitute its portfolio through active asset management and strategic divestments of assets into its managed REITs or managed funds will be a key driver for the company to maintain a lean and robust balance sheet going forward. 
  • Maintain BUY, TP of S$4.11 based on 20% discount to RNAV. 

(Derek TAN, Rachael TAN, Mervin SONG)

Source: http://www.dbsvickers.com/