CMMT (5180) - CapitaMalls Malaysia Trust - Tropicana City to be injected
Target RM1.62 (Stock Rating: HOLD)
The planned acquisition of Tropicana City Mall is positive, in our view, as it adds more assets to CMMT’s Klang Valley portfolio. However, it might not be immediately yield-accretive as it could take time for CMMT to improve rentals and boost occupancy. Our DDM-based target price is raised to RM1.62 after we lower our cost of equity assumptions as we believe this news will pique investor interest. We maintain our Hold call for now pending more details.
What Happened
CMMT announced that it has entered into a sale and purchase agreement with Tropicana City for the acquisition of Tropicana City Mall, including the mall and a 12-storey office block, for a consideration of RM540m, or RM565m including various expenses. The four-level mall has a net lettable area (NLA) of more than 448k sq ft and is currently enjoying an occupancy rate of 89.2%. Retailers currently operating in the mall include AEON Big, Golden Screen Cinemas and UNIQLO. The office tower has an NLA of more than 101k sq ft, and is currently fully occupied with main tenants that include CIMB Securities and radio broadcaster Star RFM.
What We Think
We are positive on the acquisition as it adds more properties within the Klang Valley for CMMT's portfolio. While the office acquisition was unexpected, given that CMMT is a pure-play retail mall, we believe that it was acquired as a package by the vendor. Nonetheless, it is already fully-tenanted thus we are not too concerned about the asset. The property is situated in a prime location, accessible via the Sprint and LDP highways, while it is not far from the NKVE. While earnings contributions are uncertain for now, we note that it is likely valued at a cap rate of 6-7%, in line with CMMT's cap rate for its recent revaluation of its properties. This implies a potential 15-16% earnings bump. Note that in 2013, CMMT tried to acquire the property but the deal fell through on pricing. Since then, we think not much has changed but we note that the vendor, Tropicana Corp, is reported to have a high gearing level which could have prompted the deal.
What You Should Do
We note that pending the funding structure (to be determined later), the acquisition might not be immediately yield-accretive as it would take time for CMMT to improve revenue in the mall by improving its occupancy rate and increasing rental rates via reversion. 46% of the mall’s NLA will expire within the next two years thus giving it the opportunity to increase rates.
Source: CIMB Daybreak - 27 January 2015
Target RM1.62 (Stock Rating: HOLD)
The planned acquisition of Tropicana City Mall is positive, in our view, as it adds more assets to CMMT’s Klang Valley portfolio. However, it might not be immediately yield-accretive as it could take time for CMMT to improve rentals and boost occupancy. Our DDM-based target price is raised to RM1.62 after we lower our cost of equity assumptions as we believe this news will pique investor interest. We maintain our Hold call for now pending more details.
What Happened
CMMT announced that it has entered into a sale and purchase agreement with Tropicana City for the acquisition of Tropicana City Mall, including the mall and a 12-storey office block, for a consideration of RM540m, or RM565m including various expenses. The four-level mall has a net lettable area (NLA) of more than 448k sq ft and is currently enjoying an occupancy rate of 89.2%. Retailers currently operating in the mall include AEON Big, Golden Screen Cinemas and UNIQLO. The office tower has an NLA of more than 101k sq ft, and is currently fully occupied with main tenants that include CIMB Securities and radio broadcaster Star RFM.
What We Think
We are positive on the acquisition as it adds more properties within the Klang Valley for CMMT's portfolio. While the office acquisition was unexpected, given that CMMT is a pure-play retail mall, we believe that it was acquired as a package by the vendor. Nonetheless, it is already fully-tenanted thus we are not too concerned about the asset. The property is situated in a prime location, accessible via the Sprint and LDP highways, while it is not far from the NKVE. While earnings contributions are uncertain for now, we note that it is likely valued at a cap rate of 6-7%, in line with CMMT's cap rate for its recent revaluation of its properties. This implies a potential 15-16% earnings bump. Note that in 2013, CMMT tried to acquire the property but the deal fell through on pricing. Since then, we think not much has changed but we note that the vendor, Tropicana Corp, is reported to have a high gearing level which could have prompted the deal.
What You Should Do
We note that pending the funding structure (to be determined later), the acquisition might not be immediately yield-accretive as it would take time for CMMT to improve revenue in the mall by improving its occupancy rate and increasing rental rates via reversion. 46% of the mall’s NLA will expire within the next two years thus giving it the opportunity to increase rates.
Source: CIMB Daybreak - 27 January 2015
