RHB Research 2015-07-15: CapitaLand - Bedok Mall Injection To Boost ROE. Maintain BUY.

Bedok Mall Injection To Boost ROE

  • CapitaLand is injecting Bedok Mall into CMT for SGD780m (SGD3,506 psf) and registering a capital gain of ~SGD30m. 
  • This translates to a property yield of 5.1%. 
  • Reiterate BUY with a higher TP of SGD4.22 (25% upside). 
  • We see the recent chain of divestments and private funds foray as the company’s robust recycling strategy to boost ROE and steer towards an asset-light model. 

 Long-awaited injection into its REIT vehicle. 

  • CapitaLand has entered into a S&P agreement with CapitaLand Mall Trust (CMT) (CT SP, BUY, TP: SGD2.42) for the sale of the entire interest of Brilliance Mall Trust (BMT), which owns Bedok Mall. 
  • This is based on an agreed value of SGD780m for Bedok Mall and other net assets of BMT of SGD3.1m. 

 Hefty price tag of SGD783.1m. 

  • CapitaLand will receive from CMT about SGD464m, including 72m new units in the latter. An existing bank loan of SGD319.1m taken by Brillance Mall Trust will also be repaid. The transaction is expected to be completed in 4Q15. 
  • According to CapitaLand, this translates to a net capital gain of ~SGD30m on its current book and ~SGD100m from the original development cost of Bedok Mall. 
  • The property was valued at SGD718m as of 31 Dec 2014 at a cap rate of 5.25%. This was increased to SGD775m as at 30 Jun 2015, at a higher cap rate of 5.1%. 
  • At this price, we believe CapitaLand has made the right move to unlock value in Bedok Mall at this juncture, while property prices are still holding up. 

 Consideration units take-up demonstrates shared interests. 

  • The company will be issued 72m new CMT units as part of the sale consideration, which will boost its deemed interest in CMT to 29.26% from 27.71%. 
  • We view the issue of consideration units positively, as it demonstrates the sponsor’s commitment to support the REIT’s strategy. 

 Full steam ahead to boost ROE. 

  • CapitaLand’s recent spate of divestments, including serviced residences to ART (non-rated) and 30% stake in PWC Building to DBS (DBS SP, BUY, TP: SGD23.30) are all examples of its robust capital recycling strategy to realise development profit and deploy capital into higher-yielding ventures, reaffirming management’s target and commitment to delivering a higher but sustainable ROE of 8-12% (FY14: 7.1%). 
  • Reiterate BUY with a higher RNAV-derived TP of SGD4.22 (previously SGD4.20). 

(Ong Kian Lin, Ivan Looi)

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