CapitaLand Mall Trust (CMT) announced that it has entered into a conditional unit purchase agreement with its sponsor CapitaLand to acquire a 100% effective stake in Bedok Mall. The agreed market value of S$780m translates into a purchase price of S$3,506 psf NLA and initial NPI yield of 5.1%.

In our view, Bedok Mall is a quality asset given its good location and strong operational statistics (committed occupancy of 99.3%, passing rents in the highteens). CMT intends to finance this with ~20% equity (consideration units to CapitaLand) and ~80% debt. This would raise CMT’s gearing ratio from 33.8% to 37.2%. While CMT could have financed this acquisition wholly by debt, the issuance of consideration units to CapitaLand as partial payment reflects the commitment shown by CapitaLand and also aligns its interests with CMT’s minority unitholders.

As this is an interested party transaction, unitholders’ approval is required at an EGM. Management is hoping to close the deal in 4Q15. We estimate that this transaction would increase our FY16 DPU forecast by ~1.6%. Pending completion of the acquisition and awaiting more details to be provided in the circular to be published, we maintain our HOLD rating and S$2.21 fair value estimate on CMT.

Source: OCBC Research - 15 Jul 2015