Although the STI continues to trade lower for the third consecutive day in 2014, CapitaMalls Asia (CMA) managed to move 0.8% higher day on day. Earlier yesterday morning, Macquarie Equities Research (MER) released a research note with an ‘Outperform’ rating and a 12-month price target of $2.40. MER’s price target is 24.4% above CMA’s closing price of $1.93.

Event
After close of market last Friday, a consortium between CapitaMalls Asia (50% stake), CapitaMall Trust (30% stake) and CapitaLand (20% stake) granted two options to Sun Ventures and Low Keng Huat (LKH SP, Not Rated) to purchase the entire Westgate Towers for S$597.4m or about S$1,900 per sq ft.
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Impact
Westgate Tower details. This is the office component of the Westgate Development undertaken by the CapitaLand Group. Westgate Mall is the retail component of the development opened in early Dec 2013. Westgate Tower, comprising 304,963 sq ft of office space, is slated for completion in Dec 2014. The buyers have up to 24 Jan 2014 to exercise the options, which have to be exercised concurrently.
 
Limited financing impact. Based on MER’s estimates, this transaction could add less than 0.4% to the revaluated net assets value (RNAVs) of CMA and about 0.2% to CAPL and CT on an effective stake basis. The consortium bought the mixed-used site via a government land tender in May 2011 for S$969m or S$1,012 per sq ft. Westgate Development is jointly held by Infinity Mall Trust and Infinity Office Trust, which owns the shopping mall and Westgate Tower, respectively.
 
Yield of less than 3% on MER’s estimates. Assuming rent of S$6 per sq ft, the expected yield is circa 2.7%. MER thinks the buyers could think about selling individual floors on a strata-title basis to help defray the cost. Currently, there are no committed tenants as CapitaLand decided not to move to Westgate Tower last year. CapitaLand was supposed to take up to 50% of the office NLA.
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Action and recommendation
The transaction is part of the CapitaLand group's active asset management strategy. MER expects the sale proceeds to be reinvested to other projects.

Source: MacQuarie Research - 7 Jan 2014