CAPITALAND MALL TRUST (SGX:C38U)
CapitaLand Mall Trust - When Two Becomes One
- Both CapitaLand Mall Trust and CapitaLand Commercial Trust unitholders voted in favour of merger.
- Near-term operational headwinds, but look forward to strategic benefits ahead.
- Lift Fair Value to S$2.39 as overhang is lifted.
Proposed merger to go ahead after approval obtained from unitholders
- CapitaLand Mall Trust (SGX:C38U) and CapitaLand Commercial Trust (SGX:C61U) held their respective EGMs with regards to the proposed merger between the two REITs. Both sets of unitholders voted resoundingly in favour of the resolution.
- Based on the indicative timeline, the expected effective date of Trust Scheme is on 21 Oct 2020, while CapitaLand Commercial Trust is expected to be delisted on 3 Nov 2020.
Look forward to strategic benefits of an enlarged entity
- We are positive on this development given the importance of scale in the REITs industry. Upon completion of the merger, the enlarged entity, which will be renamed CapitaLand Integrated Commercial Trust (CICT), is expected to be one of the largest REITs in Asia-Pacific in terms of market capitalisation. CICT is also expected to own 24 properties with a portfolio value of ~S$22.4b. 96% of this will be contributed by Singapore, with the remaining 4% from Germany.
- We see scope for CICT to increase its overseas exposure in the future as a means of diversification.
- In terms of asset class, 38% of the enlarged property value would be derived from Office, 33% from Retail and 29% from Integrated developments (Raffles City Singapore, Plaza Singapura, The Atrium@Orchard, Funan and CapitaSpring).
- As a recap, on a pro forma basis, DPU accretion for CapitaLand Mall Trust and CapitaLand Commercial Trust is estimated to be +4.1% and +7.6% for the last 12 months ended 30 Jun 2020, respectively. However, pro forma aggregate leverage of CapitaLand Mall Trust is expected to increase from 34.4% (as at 30 Jun 2020) to 39.7%. The strategic benefits from an enlarged REIT include better economies of scale, reduced concentration risks in a particular asset class, a potentially lower cost of capital and increased debt and development headroom which would allow the REIT to compete more effectively on portfolio acquisitions.
Overhang lifted
- Operationally, CapitaLand Mall Trust’s recovery momentum continues to gain gradual traction. Shopper traffic has recovered to ~58% of pre-COVID-19 levels as of the week ended 30 Aug, while its larger malls such as Plaza Singapura/ The Atrium@Orchard and IMM Building have recovered to 73% and 82% levels, respectively.
- We lower our cost of equity assumption from 6.3% to 6.0% as the overhang from the proposed merger is lifted, coupled with continued stabilisation in the number of COVID-19 community cases in Singapore. Consequently, our fair value estimate increases from S$2.29 to S$2.39.
- BUY.
- See CapitaLand Mall Trust Share Price; CapitaLand Mall Trust Target Price; CapitaLand Mall Trust Analyst Reports; CapitaLand Mall Trust Dividend History; CapitaLand Mall Trust Announcements; CapitaLand Mall Trust Latest News.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2020-09-30
SGX Stock
Analyst Report
2.39
UP
2.290
