RHB Research 2015-07-15: CapitaLand Mall Trust - Acquires Another Key Asset. Maintain BUY.

Acquires Another Key Asset

  • CMT’s acquisition of Bedok Mall from its sponsor would benefit unit holders as it would boost its DPU. 
  • Maintain BUY, as we raise our DDM-derived TP to SGD2.42 (12% upside, from SGD2.40). 
  • We believe Bedok Mall is a great asset as it is the only prime mall within the highly populated area. We also believe that the REIT’s next acquisition may most likely be Westgate. 

 New revenue stream in Bedok Mall. 

  • CapitaLand Mall Trust (CMT) has announced an asset injection from its sponsor, CapitaLand (CAPL SP, BUY, TP: SGD4.22), and will acquire Bedok Mall for SGD780.0m, which is equivalent to SGD3,506 psf. 
  • The property yield for the mall is approximately 5.1%, while the mall maintains a high occupancy rate of 99.3% as of 31 Dec 2014. 

 Bedok Mall is the crown jewel. 

  • Given that the asset is located within the most populated area of Singapore, we view its price as reasonable. 
  • In addition, Bedok Mall enjoys high traffic flow of an average of 1.4m shoppers every month, as it is the only prime mall within the region. 
  • We like the acquisition as it adds to the resilience of the REIT’s portfolio, and is unaffected by the currently sluggish tourism industry. 

 Gearing levels still healthy. 

  • The injection of the mall will be mainly funded by debt (79.0%), while 72m units will be issued to the sponsor (CapitaLand) to fund the remaining portion of the acquisition. Upon taking on SGD632.4m of debt, its gearing level would still be in the healthy range as it increases to 37.2% from 33.8%. 

 Any more acquisitions in the pipeline? 

  • We believe that the remaining 70% stake of Westgate held by CapitaLand could potentially be next in line to be acquired by the REIT. At current market valuations, CMT would require a sum of 765.8m to acquire the remaining stake of Westgate. As its gearing level is close to 40%, we believe it is more likely for the REIT to divest one of its assets for cash. 

 TP rises to SGD2.42, maintain BUY. 

  • We raise our DDM-based TP to SGD2.42 from SGD2.40, as we increase our FY16 and FY17 DPU forecasts by 1.6% and 1.4% respectively. 

(Ong Kian Lin, Ivan Looi)

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