October 20, 2015

Villar mulls VLL merger with STR

BusinessWorld today quoted Manuel Villar, chairman of Vista Land and Lifescapes Inc (VLL) that he is considering the merger of the company with shopping mall operator Starmalls Inc (STR). The Villar family is the controlling shareholder of both VLL and STR.

Our take: If this plan pushes through and depending on the final valuations, STR can potentially enhance the value of VLL and could even spur a rerating of VLL shares. Annualizing the 1H15 results of STR indicate that the company can potentially contribute another 8% and 10% to VLL’s annual revenues and net income, respectively.

More importantly, a 2014 independent appraisal put the fair value of STR’s investment property at P21.26b which can add roughly 12% to VLL’s gross asset value by our estimates. Such valuation also translates to a cap rate of 9.4% which we believe is fair (vs. the 8.5% cap rate valuation assigned by the market for the bigger mall operators) given STR’s relatively limited reach at the moment.

We believe that the merger between VLL and STR can also significantly enhance VLL’s operations. The simultaneous expansion of the mall business with VLL’s plan to build more mixed-use estates across the country will not only diversify and expand the company’s revenues base but may also spur further reflation of VLL’s land assets and development projects. This can prove to be a potential catalyst for a rerating of VLL shares which have been historically trading at a deep discount (between 50%-60% by our estimates) to its net asset value. – WealthSec