CapitaLand Retail China Trust - OCBC Investment 2017-11-30: Acquisition And Private Placement

CapitaLand Retail China Trust - OCBC Investment 2017-11-30: Acquisition And Private Placement CAPITALAND RETAIL CHINA TRUST AU8U.SI

CapitaLand Retail China Trust - Acquisition And Private Placement

  • Acquisition of Guangzhou Mall.
  • Private placement closed.
  • FV increases to S$1.63.

Acquisition of Rock Square in Guangzhou 

  • CapitaLand Retail China Trust (CRCT) has formed a joint venture with CapitaLand to acquire the entire stake of a company that owns a Guangzhou shopping mall known as Rock Square. CRCT is the majority shareholder with a 51% stake in the JV. 
  • CRCT's acquisition cost of S$356.6m for its 51% stake is to be funded by 50% borrowings, 28% cash, and 22% from a private placement. As of yesterday, the private placement of 51.5m new units has closed at an issue price of S$1.612, with the upsize option of 12.9m additional new units exercised, to raise a total of S$103.8m. 
  • When the acquisition is complete, CRCT’s portfolio size will increase by 28% to RMB 15.1b while the portfolio’s exposure to Tier 1 cities will increase by 6 ppt to 77.9% (assuming 100% stake of all CRCT’s assets).

Slightly DPU accretive 

  • Against FY16 figures, CRCT’s DPU would have increased from 10.05 S cents (actual) to 10.16 S cents (pro forma, based on the asset's 9M17 NPI annualized). This translates to a 1% DPU accretion. 
  • Using the asset’s FY16 NPI, CRCT’s FY16 DPU would have been 10.07 S cents (pro forma). The acquisition is targeted for completion in 1Q18.

Maintain HOLD 

  • Rock Square is one of the largest malls in Haizhu District, the second most populous urban district in the city. According to the management, it appeals to mid- to high-income working adults and families, and boasted a footfall of 24m in 2016. 
  • Going forward, we see potential for further operational upside from rental reversions of expiring leases at the asset. Notably, 52% of Rock Square’s total rent or 32% of its NLA is up for renewal from 2018 to 2020. The management believes that average passing rents are currently below market. There may be less upside in terms of leasing out additional space, as the mall already has a committed occupancy of 96.4% as of 30 Jun 2017. 
  • After accounting for the acquisition and private placement, our fair value increases slightly from S$1.61 to S$1.63.
  • Maintain HOLD.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-11-30
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.630 Up 1.610