CAPITALAND MALL TRUST (SGX:C38U)
CapitaLand Mall Trust - A Bigger Future To Look Forward To
- CapitaLand Mall Trust's 4Q19 DPU +4.0% y-o-y.
- Operational metrics still mixed.
- Proposed merger with CapitaLand Commercial Trust.
4Q19 results within our expectations
- CAPITALAND MALL TRUST (SGX:C38U) reported its 4Q19 results which met our expectations. Gross revenue and NPI grew 12.7% and 13.1% y-o-y to S$203.4m and S$140.7m, respectively. This was driven largely by contribution from Funan after its re-opening in Jun 2019 (retail and office components).
- DPU rose 4.0% y-o-y to 3.11 S cents. If we exclude the effects of the taxable income available for distribution which was released in 4Q19 and 4Q18, we estimate that adjusted DPU would have increased by a stronger 6.4% y-o-y. See Capitaland Mall Trust Dividend History.
- For FY19, CapitaLand Mall Trust’s NPI jumped 13.1% to S$558.2m, while DPU of 11.97 S cents represented growth of 4.1% and formed 100.1% of our forecast.
Operating environment remains subdued, but overall performance considered resilient
- CapitaLand Mall Trust’s overall portfolio occupancy was firm, having increased 0.4 ppt q-o-q to 99.3%. However, rental reversions moderated to 0.8% for FY19 (9M19: +1.2%). Overall shopper traffic rose 1.4%, but tenants’ sale psf/month inched down by 1.4%.
- Occupancy cost remained healthy, declining marginally from 18.4% in FY18 to 18.2% in FY19.
Proposed merger with CapitaLand Commercial Trust to create a diversified commercial behemoth REIT
- What caught the market by surprise was the announcement on a proposed merger between CapitaLand Mall Trust and CapitaLand Commercial Trust (SGX:C61U) via a trust scheme of arrangement. Under this scheme, CapitaLand Mall Trust will acquire all units of CapitaLand Commercial Trust for 0.72 new CapitaLand Mall Trust units and S$0.2590 in cash per CapitaLand Commercial Trust unit. This translates into a scheme consideration of S$2.1238 per CapitaLand Commercial Trust unit, of which 88% is in units and 12% in cash. See Capitaland Mall Trust Announcements; Capitaland Mall Trust Latest News.
- The enlarged entity will be named CapitaLand Integrated Commercial Trust and is expected to have a portfolio property value of S$22.9b and market cap of ~S$16.8b, which would make it the third largest REIT in APAC by market cap.
- We are neutral on this deal from CapitaLand Mall Trust unitholders’ perspective, as the scheme consideration price of $2.1238 is above our S$1.95 fair value for CapitaLand Commercial Trust. However, this transaction is expected to be DPU and NAV accretive for CapitaLand Mall Trust (+1.6% and +1.5% respectively, on a pro forma basis).
- Furthermore from a strategic standpoint, we believe this will alleviate some of investors’ concerns of a penetration into new markets for the enlarged entity. Pro forma aggregate leverage is expected to be 38.3% after the merger (CapitaLand Mall Trust: 32.9% as at 31 Dec 2019).
- We incorporate CapitaLand Mall Trust’s full year results in our model but have yet to include the proposed merger. After lowering our cost of equity assumption from 6.1% to 5.9% and rolling forward our valuations, we derive a higher fair value of $2.90 (previously S$2.73). See Capitaland Mall Trust Share Price; Capitaland Mall Trust Target Price. BUY.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2020-01-24
SGX Stock
Analyst Report
2.90
UP
2.730
