CMT – UOBKH
Proactive enhancements
CapitaMall Trust (CMT) invests in quality income-producing real estate used for retail purposes. It owns 13 retail malls, which are strategically located in the suburban areas and Downtown Core. CMT is the largest retail REIT with market share of 13% for private retail stock in Singapore. CMT has a 20% stake in CapitaRetail China Trust (CRCT), a China-based retail REIT listed on Singapore Exchange. CMT was assigned corporate rating of A with a stable outlook by Moody’s Investor Services. CMT is the first and largest REIT in Singapore.
Creating office blocks at Funan DigitaLife and Tampines Mall. CMT has received provisional permission to utilised unused gross floor area (GFA) of 385,500sf for Funan DigitaLife, which has only utilised 3.8 of its allowable plot ratio of 7.0. The unused GFA will be utilised to build a 4-storey office block with estimated net lettable area (NLA) of 277,630sf on top of the existing mall. NLA for retail will also increase by 14% from 296,601sf to 338,360sf. CMT was also granted an increase in plot ratio for Tampines Mall from 3.5 to 4.2. The additional GFA of 95,000sf will be utilised to build an office block on top of the existing mall. We expect construction to be completed by 2H 2010 and have factored in contributions from the two office blocks starting 1Q 2011.
Enhancing newly acquired properties. CMT submitted written permission to increase plot ratio for Jurong Entertainment Centre from 1.85 to 3.0, almost doubling NLA to 209,700sf. The asset enhancement initiative involves construction of an Olympic-sized ice skating ring. CMT has applied for the ice skating ring to be considered as civic and community uses, which provides
additional floor space of 35,000sf if approved. At Lot One, CMT will decant space occupied by National Library for construction of a 4-storey 16,500sf retail extension housing 50 new shops. Level 1 of the retail extension will be connected to Chua Chu Kang MRT station when completed in 4Q08. Sembawang Shopping Centre is being redeveloped. CMT will decant 42,610sf of residential area and shift more space into high yielding basement, level 1 and level 2. The new mall with NLA of 128,413sf will be completed in 4Q08.
No risk from refinancing. CMT has refinanced S$312.8m bonds due in Feb 08 with S$320m term loan due in Aug 09. Management plans to fix the interest rate to achieve all-in rate of not more than 3.3%, lower than all-in rate of 4.3% for the bonds. There is a smaller S$150m fixed rate note due to Dec 08. Current gearing is 35.3% after raising S$345.9m in placement to finance acquisition of remaining 72.8% stake in CapitaRetail Singapore, owner of suburban malls Lot One Shoppers’ Mall, Bukit Panjang Plaza and Rivervale Mall in Nov 07. CMT provides FY08 distribution yield of 4.51%, a healthy spread of 2.35% over 10-year Singapore government bond yield at 2.16%. Our target price is S$3.83 based on 2-stage dividend discount model.