RHB Research 2015-07-15: CapitaLand Mall Trust - Funan DigitaLife Mall On The Market.

Funan DigitaLife Mall On The Market 

  • Our channel checks show that Funan may be on the market. It was last appraised at SGD361m (SGD1,209 psf on a NLA basis) as of 31 Dec 2014, at a 16% discount to our RNAV of SGD427m (SGD1,430 psf). 
  • We think CMT may be exploring all options for Funan, as its previous attempt in 2008 to redevelop the asset was shelved. 
  • Funan constitutes only 4% of our FY15 RNAV and revenue. The divestment may not “move the needle” much. 
  • Reiterate BUY and SGD2.42 TP (12% upside). 

 Expression of interest for Funan DigitaLife Mall (Funan). 

  • We understand that JLL is marketing Funan for sale by expression of interest (EOI) presently. It is on an invitation basis only and the EOI purportedly closes on 3 Aug. 
  • Funan was last valued by Knight Frank on 31 Dec 2014 at SGD361m (SGD1,209 psf). 
  • Funan is one of Singapore’s choice destinations for information technology (IT), gaming digital and lifestyle products and has 48.6% of its FY14 gross rental in the IT and electrical and electronics trade sector. 
  • The mall sits on a site with a remaining land tenure of 63 years. 

 Exploring all options. 

  • We think CapitaLand Mall Trust (CMT) could be exploring all options for Funan, which registered a net property income (NPI) yield of 6% in FY14. 
  • Our FY15 RNAV valuation pegs the asset at SGD427m. Recall that its 163 strata units in the nearby Adelphi, representing 55.1% of total share of the building, were previously divested by CapitaLand (CAPL SP, BUY, TP: SGD4.20) to Guthurie at SGD1,225 psf in 2010. Guthurie subsequently strata-sold some of the floor plates at an average SGD2,051 psf, as recent as 2011. 
  • We expect the selling price for Funan to be at least SGD390m-450m (SGD1,306- 1,540 psf), in order for a successful transaction to take place. 

 Our view. 

  • Funan constitutes only 4% of our FY15 RNAV and revenue. As CMT previously purchased the mall for SGD191m in 2002, a successful divestment may not “move the needle” much. 
  • However, we think it may not be a bad move for CMT to unlock value from this asset when property prices are still holding up. 
  • Its previous attempt in 2007- 2008 to redevelop the mall was shelved due to the global financial crisis, and the alternative may be to restart the initiative again. 
  • Nonetheless, we find relief that CMT is actively sourcing for the best outcome for Funan, The proceeds may in turn also help to finance the ongoing Bedok Mall acquisition. 
  • Reiterate BUY with a TP of SGD2.42. 

(Ong Kian Lin, Ivan Looi)

Source: http://www.rhbgroup.com/