• Still NEUTRAL, new MYR0.54 TP from MYR0.57, 0% upside, c.7% yield. CLMT announced that it has entered a conditional sale and purchase agreement to acquire 91.8% of the total strata retail floor area in Queensbay Mall from parties related to CapitaLand Investment (sponsor) for MYR990.5m. To finance the acquisition, the REIT will undertake a private placement to raise gross proceeds of up to 50% of the total purchase consideration. Gearing is expected to rise to c.39% (from 35%) post acquisition.

• Acquisition details. The total purchase consideration of MYR990.5m represents a c.1% discount to the independent valuation of MYR1bn. Up to 50% of the total acquisition will be funded via cash proceeds from a proposed private placement, with the remainder to be satisfied via bank borrowings. Taking into account the acquisition fees and expenses, the total cost is approximately MYR1.03bn. The sponsor is committed to take up its pro-rata entitlement of 39.3% to support the private placement. The acquisition is expected to be completed by 1Q23.

• Queensbay Mall is an 8-storey shopping centre with an NLA of 883,111 sq ft and a committed occupancy of 95%. It is one of the largest malls in Penang, and is located at Bayan Lepas with close proximity to the Penang Bridge and Penang International Airport. The mall has high shoppers’ catchment from both Penang Island and Penang Mainland with an average monthly footfall of 1.1m, featuring a diverse tenancy mix of international and local brands.

• Neutral on the acquisition. While the mall can potentially offset the underperformance of the other malls in the Klang Valley to a certain extent, the timing of the acquisition may be less suitable, given the weak market sentiment towards the retail real estate segment. Going forward, malls in Penang will be the key driver for CLMT’s portfolio performance, given that about 56% of assets under management will be located in Penang post acquisition, while the proportion of Klang Valley assets will drop from 41% to 33%. While management did not share the historical rental reversion trend for Queensbay Mall, we understand that the occupancy rate has been strong at above 95%. For reference, the YTD (September) rental reversions for CLMT’s malls are -1.1% for Gurney Plaza, 3% for East Coast Mall, and -20% for Sungei Wang Plaza. While CLMT’s asset size will be boosted to MYR4.9bn post acquisition, we are cautious with the size of the placement (potentially up to 1,032m new units) and hence, impact on EPU and DPU is expected to be muted in the first two years.

• Maintain NEUTRAL. We increase FY23F-FY24F earnings estimates by 35-47%. Our TP incorporates a 0% ESG premium/discount based on our in-house methodology.

Source: RHB Research - 10 Nov 2022