11 August 2017

CapitaLand Mall Trust

CapitaLand Mall Trust (CT SP)  HOLD

Divestment of Serviced Residence Portion of Funan

  • CMT divested its interest in Victory SR Trust, which holds the serviced residence component of the Funan integrated development, to The Ascott Limited for S$90.5m. CMT stands to generate proceeds of S$101.8m and a net gain of S$20.6m.
  • Management have indicated that the proceeds will be used primarily to fund the Funan development. Management noted, however, that there are a few small opportunities for acquisition; Management have not committed to distributing proceeds from the divestment to unitholders.
  • The divestment is based on an agreed land value of S$90.5m for the serviced residence component of Funan, and other assets of approximately S$11.3m, which includes capitalised development costs up to the completion date of the transaction. Ascott will pay for all the development costs pertaining to the serviced residence portion of Funan thereafter.
  • The valuation for the serviced residence portion of the property by Savills and Knight Frank was S$86.5m and S$75m, respectively. Based on the average of the valuations, the S$90.5m sale comes at a premium of 12%.
  • The serviced residence property is slated to open in 2020. With a GFA of about 121,000 sq ft, the serviced residence portion of Funan will provide 279 units with an option to expand to 412 rooms. The transaction is expected to be completed in 4Q this year.
  • In addition to the S$90.5m invested for the acquisition of the serviced residence portion, the buyer, The Ascott Limited, will invest a further S$80m for development. The total S$170.3m investment will be made through Ascott's serviced residence global fund with the Qatar Investment Authority.
  • The Funan integrated development is set to have a GFA of 887,000 sq ft. In addition to the serviced residence, Funan comprises of a six-storey retail podium with a GFA of about 500,000 sq ft and two six-storey Grade A office towers with a GFA of about 266,000 sq ft.
  • The office towers in Funan are held in a trust structure, similar to that of Funan's serviced residence component. Management noted that they are keeping their options open on the office towers and that the trust structure of the office component of Funan reflects this.
  • Valuation. We have a  HOLD recommendation on CMT  with a target price of S$2.04. Our valuation is based on DDM (required rate of return: 6.3%, terminal growth: 1.5%).
  • The announcement has been attached for reference.