Maybank Kim Eng Research 2015-07-15: CapitaLand Mall Trust - Mildly accretive acquisition. Maintain SELL.

Mildly accretive acquisition 

  • Acquisition of Bedok Mall costs SGD795m, a tad expensive. 
  • Mildly DPU accretive due to 20% funding by units, rest debt. 
  • Raised TP to SGD1.96 from SGD1.87 on DPU accretion and higher payout ratio. Maintain SELL (DDM, CoE 7.7%, LTG 2%). 

Acquisition of Bedok Mall 

  • CMT is set to acquire Bedok Mall (222k sf NLA, 99.3% occupied) from its parent CapitaLand for an all-up outlay of SGD795m. 
  • The target itself comes with a price tag of SGD783m or SGD3,506psf, valued at NPI yield and cap rate of 5.1%. 
  • Taking a mall of comparable size like Junction 8 (252k sf NLA) valued at SGD2,623psf and cap rate 5.35%, the acquisition is on the expensive side. 
  • That said, Bedok Mall has the following advantages that could justify the slightly compressed cap rate: 
    1. land tenure of 95 years vs Junction 8’s 74, 
    2. premium passing rents of SGD19.8psf vs SGD17.4psf (no anchors needed), and 
    3. shopper traffic of 16.8m that could grow significantly (vs 31.2m) given that Bedok is Singapore’s largest estate of 294k people vs 179k in Ang Mo Kio, where Junction 8 is located. 
  • The mall is well located as a transport node with bus interchange and MRT station, and has little by way of competition apart its underperforming neighbour, Bedok Point. 

DPU accretive next year, not this. Maintain SELL. 

  • Planned for completion by 4Q15, this raises our FY15-17 NPI forecasts by 3.5%/10%/9.5%. 
  • Financing is SGD632.4m debt (aggregate gearing to rise from 33.8% to 37.2%) and the remainder by issue of ~75.6m units based on 10 day VWAP (illustrative price SGD2.15). 
  • Due to the 2.5% dilution involved, our FY15 DPU would stagnate at SGD10.7cts while FY16 accretes by SGD0.3cts to SGD11.2cts. 
  • We thus raise our payout ratio from 91% to 93% for stronger FY15-17 DPUs of SGD 10.9/11.5/11.8cts. 
  • The increased distribution raises our TP from SGD1.87 to SGD1.96 implying a 9.4% downside from here. 
  • Maintain SELL. 
  • Forward yields are still not compelling at 5.1-5.4%.

(Joshua Tan)