CapitaLand Mall Trust - RHB Invest 2020-01-22: Surprise Merger Of Two REIT Giants


CapitaLand Mall Trust - Surprise Merger Of Two REIT Giants

  • We place our NEUTRAL call and Target Price under review pending approval of the proposed merger between CapitaLand Mall Trust (SGX:C38U) and CapitaLand Commercial Trust (SGX:C61U).
  • The merger would result in the combined REIT being the largest in Singapore and third largest in Asia Pacific. The new entity would have better scalability and growth opportunities, with larger pool of assets in the acquisition pipeline, asset class diversification and potential lower capital cost.
  • With size, scalability and diversification being critical factors driving REIT performance, we recommend both unitholders to accept the offer.

Merger details.

Key benefits and reasons for merger.

  • We view one of the key reasons for the merger is to enhance portfolio resilience by combining asset classes (retail, office and integrated developments) and reducing reliance on single assets. With the retail market undergoing transformation globally, we believe such a move increases longer-term defensiveness. The new entity is also likely to see further lowering of capital cost and some cost synergy in its portfolio.
  • The merged entity will become the largest in Singapore and third largest in Asia Pacific with combined market capitalisation of SGD16.8bn, making it the go-to REIT for exposure to Singapore commercial space (96% of total). It provides the combined entity with a larger debt headroom of c.SGD2.9bn (assuming 45% levels) for acquisitions, and also enhances development headroom.

What’s next for the combined entity?

  • Both the REITs’ management teams emphasised on overseas expansion (developed markets only) while remaining Singapore-centric, with overseas expected to account for 20% of overall in the medium term.
  • With integrated developments becoming the key trend globally, the merger will also reduce any potential conflict of interest between the two REITs and will allow them to evaluate acquisitions as a whole. There is also potential for CapitaLand Mall Trust to redevelop some of the ageing retail assets in its portfolio into integrated developments in the future.

Fee structure and acquisition fees.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-01-22
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 2.380 SAME 2.380