CMT – DBSV
Illuminating Bugis
• Acquisition to expand portfolio size by 4%, create synergies with Bugis Junction
• Small but positive move, able to grow organically almost immediately
• Maintain Buy, TP $2.08
4% growth in portfolio value. CMT announced it is purchasing Illuma, a retail and entertainment complex at Victoria Street, for S$295m or S$1593 psf, in line with valuations. All-in cost works out to S$299m or S$1614 psf. The mall, spread out over seven floors with 321 carpark lots, has GFA and NLA of 297,399 sf and 185,190 sf respectively. Under the URA guideline, at least 60% of the GFA has to be used for entertainment purposes. The trust intends to fund this purchase using its cash balance of S$713m as at Dec 2010.
Organic uplift immediately. We view the acquisition price as fair, taking into account the shorter land lease and the potential for a quick ramp-up from the initial yield of 3.8%. Current occupancy at Iluma is 83.7% with about 129 tenants. Major tenants include Filmgarde Cineplex, K Suites, Arcadia and Ebisboshi Shotengai. Iluma is connected to Bugis Junction via an overhead link bridge, creating a seamless connection. With a combined NLA of 606,000sf, the manager intends to transform it into a retail destination, a magnet for both locals and tourists in the Bugis area. The mall has a high entertainment component, which could complement CMT’s Bugis Junction. In the near term, we believe the low-hanging fruit could come from raising occupancy levels at the property. Medium term, pro-active asset management exercises will drive returns, which include reviewing tenancy mix as c50% of its leases are expiring over the next 2 years as well as improving property utilisation rate.
Maintain Buy. We continue to like CMT for its execution track record and we believe it will be able to improve Illuma’s property returns in the medium term. We view this deal as positive for CMT’s growth strategy. However, initial impact on earnings and valuation is limited given the modest asset size (c. 2% of FY2011 NPI, 4% of AUM). Maintain Buy with unchanged TP of $2.08.
CMT – OCBC
Acquisition of Iluma; turnaround play for CMT
Acquisition of Iluma for S$295m. CapitaMall Trust (CMT) has announced that it has entered into a sale and purchase agreement to acquire Iluma, located opposite Bugis Junction, (one of CMT’s existing properties) for S$295m from Jack Investment Pte Ltd1 . The mall has a NLA of 185,190 sq ft and leasehold of 60 years commencing from 30 Sep 2005. Based on the current rental rates and occupancy of 83.7%, the entry yield is 3.8%. CMT has also committed to lease certain units, specifically the units which house Filmgarde cineplex and a multi-purpose performance hall2 . CMT intends to wholly finance the acquisition through internal sources of funds. Following the acquisition, CMT’s aggregate leverage will remain unchanged at 38.2%. With this inclusion, CMT’s total deposited property will increase from S$8.1b as at 31 Dec 2010 to approximately S$8.4b.
Turnaround play. We attended the analyst briefing yesterday. CMT is positioning the acquisition as a turnaround play. It believes that given its strategic location next to Bugis Junction (the two malls are already connected by an overhead linkbridge) and by leveraging on its pro-active asset and lease management capabilities, there will be further opportunities to improve the occupancy rate, tenancy mix and utilisation of space at Iluma. In terms of rental upside, there’s 16.3% of immediate vacancy and 10.4% and 40% of leases are up for renewal in 2011 & 2012 respectively. It also estimates that Iluma presently attracts shopper traffic of more than 1m per month, compared to 3.2m at Bugis Junction. There is thus scope for more synergistic values to be created through the integration of Iluma with Bugis Junction, with a combined NLA of more than 606,000 sq ft – about the size of Ion Orchard. The combined offerings of the integrated mall will further strengthen its overall attractiveness to shoppers. This bundling approach is similar to what CMT has initiated for Plaza Singapura and the Atrium@Orchard at the moment.
Maintain BUY; fair value estimate of S$2.00. Turnarounds are often difficult to execute and we believe this is likely the case here, at least in the short-term. Without further capex for redevelopment works, it is unlikely that significant rental escalation can happen soon. A gestation period is inevitable and we estimate that it may take till 2014 before occupancyrates and average rents can match those of Bugis Junction. As such, our fair value estimate edged up marginally to S$2.00; maintain BUY.
CMT – BT
CMT plans to boost earnings from Iluma
CAPITAMALL Trust (CMT) intends to boost the occupancy, average rents and net lettable area (NLA) at its newly acquired Iluma shopping mall in Bugis.
The real estate investment trust, which is a unit of CapitaLand, on Monday said that it has agreed to buy the mall from private property group Jack Investment for $295 million.
Speaking to analysts and reporters yesterday, CMT chief executive Simon Ho said that the trust is likely to invest in asset enhancement works to boost the net property income from Iluma.
But the amount of investment that will be required has not been determined yet, he added.
Iluma is located at Victoria Street opposite Bugis Junction, which is one of CMT’s existing properties. The mall has a net lettable area of 185,190 square feet and is connected by a link to the second storey of Bugis Junction.
Iluma’s current occupancy stands at 83.7 per cent, lower than Bugis Junction’s 100 per cent. Average rents for prime retail space in Iluma also range from $15-$19 per square foot per month (psf pm). At Bugis Junction, average rents for prime space range from $16-$29 psf pm, CMT said.
Iluma has an NLA efficiency (ratio of NLA to gross floor area) of around 62 per cent, lower than CMT’s portfolio average of about 68 per cent, said Mr Ho. He plans to boost the NLA efficiency.
DMG & Partners Securities said in a report yesterday that CMT, through its retail management expertise, would be able to raise Iluma’s current occupancy from 83.7 per cent to match Bugis Junction’s current 100 per cent. The firm has a ‘neutral’ call and a target price of $2.00 on the stock.
CMT shares rose five cents to close at $1.86 yesterday.
StarHill Global – DBSV
Starhill Global Reit enhancing Wisma Atria, no surprise
Starhill Global Reit has proposed to embark on some asset enhancement plans for Wisma Atria. The exercise will involve enhancing the mall facade, featuring double-storey storefronts on the second and third storey to showcase the latest flagship stores of international retailers. Pedestrian footpath spanning the facade of Wisma Atria will be widened. Strategically located ramps and walkways leading to the new shop fronts will also be included to improve accessibility from the surrounding malls and the Orchard Road MRT station. To minimize disruption to Wisma’s operation, the AEI will be carried in phases over 1Q/2011 to 3Q/2012. Estimated capex of $31m will be funded internally and yield a ROI of 8.0% or $2.5m additional NPI. Minimal impact on gearing of c. 31% post AEI works.
While the impact is yield accretive, it is likely to be felt in the medium term when the enhancement works are completed. We see this move to tap low hanging fruits from its existing portfolio as positive as it allows them to boost the mall’s visibility along Orchard Road and intensify shoppers’ experience. We have previously assumed a larger scaled AEI plan in our numbers and have now adjusted our estimates to reflect the updated AEI plans unveiled by the manager. FY11 and FY12 DPU estimates of 4.28cts and 4.46cts respectively have been lowered marginally to account for the vacancy of 3% during the AEI period. We expect the impact of additional income to be felt post FY13, upon completion and stabilization of the AEI.
Maintain buy with a slightly lower TP of $0.73
CMT – BT
CMT inks deal to buy Iluma for $295m
CapitaLand unit CapitaMall Trust (CMT) has agreed to buy Iluma, a shopping mall in Bugis, for $295 million.
Iluma is located at Victoria Street opposite Bugis Junction, which is one of CMT’s existing properties. The mall has a net lettable area of 185,190 square feet and is connected by an overhead link-bridge to the second storey of Bugis Junction.
CMT is buying the mall from Jack Investment, a private local property development and investment company. Previous media reports have put Jack Investment’s investment in Iluma at around $160 million.
With the acquisition of Iluma, CMT’s portfolio increases to 16 shopping malls. CMT is the largest real estate investment trust (Reit) in Singapore by asset size. Its portfolio is valued at around $8.1 billion.
‘The acquisition of Iluma is exciting as we see a lot of opportunities to integrate it with our Bugis Junction,’ said Simon Ho, chief executive of the trust’s management team. ‘The two malls are already connected by an overhead link-bridge and we see scope to create an enlarged and seamless shopping destination that will appeal to locals and tourists.’
Bugis Junction, with its direct connection to the Bugis MRT station and central location, already attracts strong shopper traffic of more than 3.2 million per month, Mr Ho said.
The integration of Iluma with Bugis Junction will create a combined shopping destination with net lettable area of more than 606,000 sq ft, about the size of CapitaLand’s Ion Orchard mall on Orchard Road.
At the price of $295 million and based on the current rental rates, occupancy of 83.7 per cent and entry yield of just under 4 per cent, the acquisition is yield accretive to CMT’s current portfolio, Mr Ho explained.
He added: ‘With its prime location next to Bugis MRT station and planned integration with our Bugis Junction, we are confident that the occupancy of Iluma can match Bugis Junction’s occupancy of 100 per cent and its property yield can be boosted to be in line with the other malls in our portfolio.’
CMT shares gained three cents to close at $1.81 yesterday.