• Acquires retail mall in Chiba, Japan
• Completed 650m CB issue
• Balance sheet remains robust

Acquires Vivit Minami Funabashi shopping mall in Japan

CapitaLand (CAPL) recently announced that it has agreed to wholly acquire, through the CMA Japan Trust, the entire interest of a shopping mall in Japan for JPY3.05b (S$33.2m) in cash. The mall, Vivit Minami Funabashi (Vivit), is located in Funabashi city in the Chiba Prefecture, Greater Tokyo, Japan. Vivit is currently part of a portfolio of assets held by CapitaMalls Japan Fund Pte Ltd, which is managed by a subsidiary of the group and in which CAPL has an interest of 26.29%.

We understand the mall was independently valued at JPY10.5b (S$114.2m) by Cushman & Wakefield as at end FY14, and the purchase consideration was derived after accounting for the liabilities of the holding entities. The price reflects fair value, in our opinion, and we assign no accretion to the group’s RNAV on this acquisition.

While China and Singapore remain core markets for the group’s retail mall business, we believe the addition of this asset, which the group is already familiar with, is a low-risk proposition that will complement the retail portfolio and provide an incremental source of stable income. The acquisition is expected to be completed on 30 June 2015.

Successfully issued S$650m in convertible bonds due 2025

In addition, the group also successfully completed the issue of S$650m in convertible bonds earlier this month. The newly issued CB has a coupon of 2.8% and is due in 2025, and the group intends to use the proceeds to refinance the repurchases of the outstanding S$1.2b 2.875% CB due 2016 and S$1.3b 3.125% CB due 2018.

We like that management is actively refinancing its shorter duration debt in the window before a likely Fed rate hike in 2H15, while the group’s net gearing and interest coverage ratio remains at a prudent 57% and 7.2x, respectively. Maintain BUY with an unchanged fair value estimate of S$4.07 (25% discount to RNAV).

Source: OCBC Research - 23 Jun 2015