CMT – DMG

Successful joint tender for Jurong Gateway site

Successful joint bid at S$969m. CapitaMall Trust (CMT), CapitaMall Asia (CMA) and CapitaLand have successfully beaten four other bidders for the 18,159.1 sqm site at Jurong Gateway (JG). Under the joint tender agreement, CMT/CMA/ CapitaLand will hold 30%/50%/20% stake in the two entities (JG Trustee and JG2 Trustee) which emerged as the winners of JG site bid. At least 40% of the GFA of JG site under development will have to be used for office purpose. Given that this is a Greenfield site, there will be no DPU accretion to CMT in the next two years. Maintain NEUTRAL with unchanged TP of S$2.00.

Strategic location comes at dearer price. The latest site to be awarded sits conveniently beside Jurong East MRT interchange station. Due to the popularity of this location, there were five bidders for the JG site, with the winning bid beating the second highest by 5.7%. Other key bidders were United Engineer, Singapore Press Holdings, Fast East Civil Engineering etc. According to CBRE, the retail/commercial assets at JG site can garner S$15/S$6 psf pm respectively. Based on JG site’s winning bid of S$1,012psf ppr, and recent JG site transaction, JG and JG2 Trustees paid 56% premium on psf ppr to the URA land sale at Jurong Gateway Road successfully won by Lend Lease Retail Investments 3, and Lend Lease Commercial Investments in Jun 2010.

We value CMT at S$2.00 based on DDM (COE: 8.0%; TGR: 2.0%). At its current trading level, CMT’s 12-month forward dividend yield is 5.4% while its spread is 3.1%. Considering that its pre-crisis mean spread was 3.0%, and there is a lack of growth catalysts in the next 12 months, we believe CMT is trading at fair valuation.