CapitaLand Mall Trust: Entrenching presence in the Jurong Lake District August 28, 2018

PSR Recommendation: NEUTRALStatus: MaintainedTarget Price: SGD2.05
  • CMT to acquire the remaining 70% stake in Westgate for S$790mn.
  • Acquisition based on market value of Westgate at S$1,128mn ($2,746psf).
  • Recycling of capital from Sembawang Shopping Centre sale into a newer asset at3% entry yield.
  • Latest committed occupancy at 98% with a 99y lease tenure from 2011.

What is the news?

CMT announced the acquisition of the remaining 70% stake in Westgate for S$789.6mn from sponsor parent CapitaLand Limited. Including acquisition-related expenses, CMT’s total outlay is estimated at S$806mn, to be funded through a combination of debt and equity that will be decided in due course. Transaction is expected to be completed in 4Q18.

What do we think?

Entry yield lower than portfolio NPI yield of 5.8%. Acquisition is only accretive if heavily funded by debt by our estimates. Assuming a cost of debt in line with CMT’s current average cost of 3.2% and taking into account incremental management fees, we estimate that the acquisition will only be accretive to FY19e DPU if funded by 70% debt or more. Assuming fully debt funded, the acquisition (at current earnings level) could improve FY19e-FY20e DPU by c.1.2% and potentially our target price by S$0.02. A fully debt funded acquisition will bring CMT’s gearing level up to c.36%.

Market value of Westgate nudged up 14% in just two months. At S$1,128mn, the agreed market value for Westgate is 14% higher than the implied S$991mn valuation as at June 2018. This is mainly due to compression in cap rates used in the latest valuation.

Entry yield comparable with Jurong Point transaction last year despite continued compression in cap rates since then. Despite the higher market value from the level seen just 2 months ago, we note that the entry yield of 4.3% is comparable to that of the S$2.2bn Jurong Point acquisition in CY2Q17.

Entrenching their presence in the fast-growing Jurong Lake District. With the Jurong Lake District slated to become Singapore’s second central business district and government plans to develop up to 42,000 new homes in the new Tengah estate, connected via the Jurong Region Line, there is immense potential for future growth in the area.

Maintain NEUTRAL with unchanged target price of S$2.05.

We maintain our forecasts pending approval of the interested-party transaction at the upcoming EGM. Depending on the funding capital structure, assuming minimum 70% debt-funded for an accretive acquisition, upside to our target price will range from flat to $0.02. Our current target price translates to an FY18e yield of 5.6% and P/NAV of 1.03.

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About the author

Profile photo of Tan Dehong

Tan Dehong
Research Analyst
Phillip Securities Research Pte Ltd

Dehong covers primarily the REITs and property developer sector. He has close to 7 years experience in equities related dealing and research roles.

He graduated with a Masters of Science in Applied Finance from SMU and Bachelors of Accountancy from NTU.

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