CapitaLand Mall Trust - CGS-CIMB Research 2018-08-27: Acquiring The Remaining Stake In Westgate

CAPITALAND MALL TRUST SGX:C38U

CapitaLand Mall Trust - Acquiring The Remaining Stake In Westgate

Capitaland Mall Trust (CMT) has proposed to acquire the remaining 70% stake in Westgate for S$805.5m. The mode of funding to be determined. Fully debt funded will raise gearing to 36%.
The mall is well positioned in the heart of Jurong East and poised to reap long-term benefits from the developments around Jurong East.
Maintain forecasts for now, pending more details on the acquisition. Maintain HOLD with an unchanged DDM-based target price of S$2.21.

Capitaland Mall Trust has announced that it has entered into a conditional unit purchase agreement with CMA Singapore Investment and CL JM Pte. Ltd. to acquire the balance of 70% of the units in Infinity Mall Trust which holds Westgate. CMT currently already owns the other 30% of the IMT Units.

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Total consideration of S$805.5m comprises the
1. purchase price of S$17.9m,
2. repayment of unitholders’ loans owned by IMT to the Trustee and the Vendors of S$379.7m,
3. bank loans owed by IMT to certain financial institutions of S$392m and
4. other related transaction costs.
Purchase price of S$805.5m translates into an acquisition yield of 4.3% or S$2,746 psf which is within the range of the two independent valuations of S$2,751 psf by Colliers and S$2,738 psf by Jones Lang LaSalle.

The rationale behind the acquisition is to increase exposure to the Jurong Lake District which is slated to be the second central business district in Singapore. According to the draft masterplan from the Urban Redevelopment Authority, there are plans to create 100,000 jobs and build 20,000 homes in this area.
Tengah, the new HDB town of approximately 700 hectares which will have about 42,000 new homes when completed, will be connected to the Jurong East MRT station, which is located near the mall, via the future Jurong Region Line. Upon the completion of the Jurong Region Line, the Jurong East MRT will be served by three MRT lines which should help to increase traffic flow substantially. Thus, even though Westgate has been reporting negative but improving rental reversions, management sees long-term potential for the mall.
Furthermore, negative rental reversions were mainly due to the bulk renewals during the renewal cycle as the trust puts in better tenants to improve shopper traffic. We understand that tenant sales increased by about 2% y-o-y in 1H18 after the change in the tenant mix.

The trust is still considering the mode of funding for the acquisition.
Based on its 2Q gearing and assuming the acquisition is fully debt funded, its gearing level will increase to 36%, which is still healthy.
1. Assuming 90% of the acquisition will be funded by debt as S$7.9m of the acquisition fee will be paid in the form of units and
2. after adjusting for the additional 70% stake in Westgate from the acquisition,
our FY18-FY20 DPU will be increased by 1-3% while our target price will be raised by 3%.
We think that the acquisition will likely be funded by less debt (less than 90%) to keep gearing at a comfortable level. Assuming a base case scenario whereby 50% will be funded by debt, the impact on our DPU forecasts should be largely neutral.
We maintain our forecasts and DDM-based target price for now, pending more details on the acquisition. The acquisition is expected to be completed in 4Q18.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-27

SGX Stock Analyst Report HOLD Maintain HOLD 2.210 Same 2.210