SINGAPORE (Aug 28): Capitaland Mall Trust (CMT) announced it was acquiring the balance 70% of the units in Infinity Mall Trust (IMT) which holds Westgate mall.
See: CapitaLand Mall Trust to acquire remaining 70% stake in Westgate for $790 mil
CMT says the acquisition will 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 around 700ha 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.
In a Tuesday report, CGS-CIMB Securities lead analyst Eing Kar Mei says that is why CMT’s management sees long-term potential for the mall even though Westgate has been reporting negative but improving rental reversions.
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,” says Eing.
CMT’s total consideration of $805.5 million for Westgate comprises the purchase price of $17.9 million, repayment of unitholders’ loans owned by IMT to the trustee and the vendors of $379.7 million, bank loans owed by IMT to certain financial institutions of $392 million and other related transaction costs.
The purchase price of $805.5 million translates into an acquisition yield of 4.3% or $2,746 psf which is within the range of the two independent valuations of $2,751 psf by Colliers and $2,738 psf by Jones Lang LaSalle.
CGS-CIMB thinks that the acquisition will likely be funded by less than 90% debt 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,” says Eing.
CGS-CIMB is maintaining a “hold” for CMT with a target price of $2.21.
As at 12.25pm, units in CMT are trading at $2.15, unchanged year to date, implying 5.1% dividend yield for FY19F.
