The research team at OCBC Investment Trust has maintained its “buy” rating and increased its fair value estimate on CapitaLand Mall Trust (CMT) to $2.39 from $2.29 previously.
The raised fair value comes a day after unitholders in CMT and CapitaLand Commercial Trust (CCT) voted in favour of the proposed merger on September 29.
The team also views CMT as a strong REIT due to its solid sponsor support, and its prudence in its capital management.
CMT has one of the longest average debt to maturity within the Singapore REITs (S-REITs) sector.
As such, the team believes that the REIT has sufficient undrawn credit facilities to provide some buffer despite the adverse impact it suffered due to the global Covid-19 outbreak.
On the merger with CCT, the enlarged entity, which will be renamed CapitaLand Integrated Commercial Trust (CICT) has the potential to increase its overseas exposure in future as a means of diversification, says the team.
On a pro forma basis, the merger is accretive to the distribution per unit (DPU) for both CMT and CCT.
According to the team, DPU accretion is estimated to be at +4.1% and +7.6% for CMT and CCT for the last 12 months ended June 30, respectively.
However, the aggregate leverage of CMT is also expected to increase to 39.7% from 34.4% as at June following the merger.
“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,” they say.
Following the lifting of the circuit breaker measures, CMT has seeing recovery in shopper traffic, which came up to around 58% of pre-Covid-19 levels as of the week ended August 30.
The REIT’s larger malls such as Plaza Singapura and The Atrium @ Orchard, as well as IMM Building, have recovered to 73% and 82% levels respectively.
However, the team cautions that a slowdown in macroeconomic conditions may dampen consumer and business sentiment and that a rising interest rate environment could increase borrowing costs for the REIT.
As at 4.19pm, units in CMT are trading 1 cent higher, or 0.5% up, at $1.94.
