Extract fm OCBC Report,

S$406m cash call. CapitaMall Trust (CMT) has announced its intention to raise S$406m in equity to partly fund its recently announced acquisitions i.e. Parco Bugis Junction, Jurong Entertainment Centre (JEC) and to refinance Sembawang SC and Hougang Plaza bought earlier. We estimate that at S$2.35 for the new units, a total of 173m new units could be issued, raising the number of units in issue by about 14% to 1,378m units. The impact of the acquisitions is a rise in our distribution per unit (DPU) forecast by about 4.6% to 10.67 cents (from 10.20 cents) in FY05 and about 1.2% to 10.93 cents (from 10.80 cents) for FY06, giving a yield of 4.5% and 4.6% respectively.

Competition slowing down growth. CMT has grown very rapidly and has more than tripled its asset size since its IPO (see table). In FY04, its assets grew by 80% YoY, however in FY05 the growth rate has slowed to only 48% YoY. We believe this indicates the lack of investment grade properties and explains CMT’s acquisition of an entertainment centre (i.e. JEC) at relatively low yield of 5.2%. More importantly, we see the trend of buying assets in other segments to continue. Furthermore as opportunities are exhausted domestically, CMT might even venture abroad to meet growth expectations. Ironically (depending on the final portfolio mix), these new assets could have an unintended effect of raising the risk profile of CMT. This will result in a higher yield demand to compensate for the higher risk and hence raising its DPU expectation even further.

Maintain fair value and rating. Finally in terms of ratings, we are introducing a new floor valuation based on existing portfolio to reflect slower growth. Our floor value for CMT is S$1.93 per unit, however in terms of fair value and target price, it remains unchanged at S$2.59. This is based on the expectation that CMT to achieve an asset size of S$5.0b with no appreciable change in risk profile. Presently we see limited upside and hence maintain our HOLD rating on CMT.