This article was recently published on Calvin Yeo's blog, www.investinpassiveincome.com, and is reproduced with permission


Calvin_Yeo_Passive
Calvin_Yeo

On Tuesday (Nov 1), CapitaMall Trust fell drastically from $1.90+ to $1.79 and has remained around the same level yesterday (Nov 2) as well. The reason for the fall is that CapitaMall Trust issued a private placement between $1.79 to $1.85.

Amount raised is $250 million for further AEIs (Asset Enhancement Initiatives) and some working capital. I shared this on some groups in Facebook and I think this warrants a post on my blog as well.

I feel the stock price is unfairly punished. If you had picked up the stock at below $1.79, you would have gained an advantage over the institutional investors.

Furthermore, there will be an advanced distribution of 1 cent for existing unitholders before the issue. I will be sharing some of the discussions which went back and forth about this on my Facebook account.

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Raffles City is part of the CapitaMall Trust portfolio. Photo: Internet

For those who are worried about dilution, here are some figures: The issue is 139,665,000 units out of existing 3,184,935,885, so dilution is minimal at only 4% of the total units outstanding.

For those who are wondering if the amount raised is excessive, it’s not a big deal as the private placement is issued at a pretty reasonable price $1.79-$1.85.

It is not a huge discount compared to the recent LippoMalls rights issue.

In fact, it’s a good time to issue equity as the price is not trading at a heavy discount as opposed to later if the price falls dramatically due to global downturn.

It also thus makes sense to raise more cash than required for AEIs as each time there is a share issuance, the costs associated i.e. investment banking, accounting, legal fees are quite substantial.

As to the fair price, it depends on how you look at it. It is currently at 5.3% dividend yield, 39% leverage ratio, and trades at about 15% above NAV.

If you ask me, CMT is not exactly undervalued.

However, I don’t mind paying a bit of a premium for an outstanding management, good properties and further rental upside.

I would like to draw a parallel to Fraser Centerpoint Trust which did a private placement just a month ago.

I bought in cheap on the news and now it’s back to pre-private placement levels. Analyze the transactions carefully to see if the drop in share price is warranted.

CapitaMall trust is the best performing trust in my portfolio, and this drop is the chance to grab it for cheap.

 

Resource: http://capitamall.listedcompany.com/newsroom/CMT_Press_Release_Private_Placement.pdf

Calvin Yeo spent the last 5 years researching and perfecting his passive income tools. He is in the process of setting up his family and realizes that it’s not enough to just provide for the family. You need to have time to spend with your family, especially children as they grow up. He has examined his own life and knew he had to take action now to invest for his future and his dreams.

Calvin graduated with a Business Major in Finance and Accounting and spent a few years working in an investment bank. The knowledge from his studies and working experience serve as a good base for him to grasp the ideas for passive income generation.