CapitaMall Trust’s 139.7m units of private placement to strengthen its balance sheet

What Happened
CMT is placing out 139.7m units (4% of its unit base) privately to raise S$250m in gross proceeds. Pricing took the low end of the range between S$1.79-1.85 per unit, representing 5% discount to its adjusted VWAP of S$1.88 per unit and adjusted FY12 yields of 5.7%. Proceeds will be used to fund AEI and capex obligations at Iluma, Atrium and JCube.

What We Think
The proceeds would strengthen its balance sheet, with CMT raising funds at a time when its share price has held up at 1.2x P/BV with a tight discount to its last traded price. Placement is expected to lower aggregate leverage (inclusive of a 30% pro-rated share of commitments for the Jurong Gateway site) to 39% from 40%.

While this does not completely eradicate needs for cash calls, immediate cash-call risks should ease while CMT would be positioned to tap further AEI opportunities in its other malls. While cost of equity is higher than cheap debt (we had previously assumed debt funding of capex), this is still lower than blended yield on cost and expected returns on capex for the three projects: Jcube (est. 10%), Atrium (est. 10%) and Iluma (est. 22%), suggesting accretion on AEI and capex.

What You Should Do
We believe forward yields of 5-6% are attractive given CMT’s resilient suburban retail exposure, particularly with a strengthened balance sheet after its private placement. Maintain Outperform.