CapitaLand Mall Trust (CT SP) - DBS Research 2018-04-19: Brick And Mortar Retail Still An Attractive Asset Class

CapitaLand Mall Trust (CT SP) - DBS Vickers 2018-04-19: Brick And Mortar Retail Still An Attractive Asset Class CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust (CT SP) - Brick And Mortar Retail Still An Attractive Asset Class

  • Sembawang Shopping Centre divested for S$248m, close to double the latest valuation, implying exit yield of 2.6%.
  • Buyers are Lian Beng and Apricot Capital JV.
  • Sembawang Shopping Center could struggle operationally in its current form given competition from larger malls in the vicinity.
  • Upside for buyers could hinge on redevelopment of the property to a mixed-use project in the long term.

What’s New 

CapitaMall Trust (CMT) reported the divestment of Sembawang Shopping Center for S$248m. The sale price represents close to double the valuation on its books (S$126.0m).

  • Sembawang Shopping Center has 4 retail levels (including a basement) and three car park levels. Based on CMT’s disclosure, the mall has an occupancy rate of 99.4% with an annual foot traffic of 5.1 million shoppers. Key tenants include the likes of Cold Storage, Yamaha, Auric Pacific, and Daiso.
  • The buyer is a JV of Lian Beng Group (listed contractor and developer) and Apricot Capital (Super Group’s Teo family’s private investment firm).
  • Lian Beng had also previously acquired the Wilkie Edge from CapitaLand Commercial Trust (CCT).

Good exit price for CMT at c.2.6% yield; property to remain challenged in its current form

  • Currently valued at a cap rate of 5.05%, we estimate the exit yield to be close to 2.5%-2.6%, which is one of the tightest we have seen in recent years.
  • At c.143,000 sqft, Sembawang Shopping Centre’s footprint as a mall is small in context of the current focus on operational scale (c.300,000 sqft – 400,000 sqft) to potentially reposition to incorporate new experiential concepts to attract shoppers outside of the primary catchment area to the mall.
  • In addition, competition is picking up with the completion of Northpoint City (Yishun MRT) and Causeway Point (Woodlands MRT) located nearby which on its own are malls with large footprints. This may cannibalise traffic from Sembawang Shopping Center.
  • As such, we believe that Sembawang Shopping Center in its current form will continue to operate as a “convenience mall” and thus see limited upside and repositioning opportunities.

Redevelopment of Sembawang Shopping Center to a mixed-use site? 

  • In a press release, Lian Beng reported that this acquisition allows the group to derive steady rental income from the property, and adds to group earnings.
  • The pricing represents an exit price of S$1,726 psf on NLA or S$1,203 psf on GFA ). This appears to be a fairly attractive level for Lian Beng to gain access into Singapore’s commercial property market when compared to the high land prices that we are seeing in the residential space and asking prices for commercial en bloc space.
  • One of the few unique points of Sembawang Shopping Centre is that the site sits on a land lease tenure of 999 years (starting year 1885) which makes the property one of the few with a rare long lease tenure in Singapore.
  • While the property sits on a land site zoned commercial, we believe that Lian Beng could repositioned it into a mixed use development, subject to approval from the authorities, in the longer term. This strategy could be an avenue that the consortium will take to unlock value in the longer term.

Views on CMT 

  • While the headline numbers are eye popping with CMT selling Sembawang Shopping Centre at nearly twice its valuation as at 31 December 2017, the impact on CMT’s valuation is limited given that Sembawang Shopping Centre only represents 1-2% of CMT’s NAV.
  • Nevertheless, we believe the sale is a signal to the market that CMT’s properties are conservatively valued.
  • CMT’s retail assets are currently valued on cap rates ranging from 4.50% to 5.05%. This compares to prior transactions such as Jurong Point and Rivervale which were sold at 4.2% and 3.75% respectively, and Sembawang Shopping Centre now sold at 2.5-2.6%. 
  • While the retail REITs continue to remain relatively “under-owned” within the REITs’ space, this positive news could be a support for share prices in the near term.

Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2018-04-19
SGX Stock Analyst Report BUY Maintain BUY 2.190 Same 2.190