CapitaMall Trust

OCBC on 22 June 2012

CapitaMall Trust (CMT) recently announced that it would issue HKD1.15b 3.76% Fixed Rate Notes due 2022 under its USD2.0b Euro-Medium Term Note Program. The proceeds would be swapped into SGD190.1m at a fixed 3.45% rate and used to partially refinance the S$783m secured term loan maturing in Oct 2012. We note that CMT’s refinancing is going smoothly with interest costs mostly in line with its current average of 3.3% (end 1Q12), which would consolidate its balance sheet position and lengthen the average term to maturity of its debt structure. In addition, with the strategic divestment of Hougang Plaza and enhancement works at Bugis+ on track to complete in Jul 2012, we believe that management is executing well on strengthening CMT’s balance sheet and optimizing its asset portfolio. Maintain BUY with a fair value estimate of S$2.02.

Refinancing – so far so good
CapitaMall Trust (CMT) recently announced that it would issue HKD1.15b 3.76% Fixed Rate Notes due 2022 under its USD2.0b Euro-Medium Term Note Program. The proceeds would be swapped into SGD190.1m at a fixed 3.45% rate and used to partially refinance the S$783m secured term loan maturing in Oct 2012. We note that CMT’s refinancing is going smoothly with interest costs mostly in line with its current average of 3.3% (end 1Q12), which would consolidate its balance sheet position and lengthen the average term to maturity of its debt structure.

Hougang Plaza divestment further consolidates balance sheet
CMT also recently completed the sale of Hougang Plaza for S$119.1m, resulting in a divestment gain of S$83.8m. Proceeds would likely be used to repay debt and fund potential acquisitions. In our view, with S$1.2b of cash already on its balance sheet and its share price trading at a relatively tight yield of 5.6%, we think CMT’s deployment of the sales proceeds could potentially shed further light on the odds of making a bid for its parent’s stake in the ION ahead.

Bugis+ on track to complete enhancement works
Bugis+ remains on track to complete AEI works by Jul 2012 and its major anchor tenant, Uniqlo, recently began operations. We believe that over 90% of tenants, including Sephora and Aeropostale, would begin sales over the next few months. The yield on cost (including AEI) for Bugis+ is estimated at ~5.8%, in line with that of Bugis Junction, and is significantly improved from the 3.8% passing yield seen when Bugis+ was first acquired as Illuma.

Maintain BUY at fair value estimate of S$2.02
We continue to like CMT’s significant exposure to sub-urban retail rentals, which was relatively resilient during the last downturn. Note that, despite seeing gross turnover fall as much as 21% in some trade categories over FY09, rental reversions remained positive at 2.3% across the portfolio with occupancy rates close to 100%. Maintain BUY with a fair value estimate of S$2.02.