What Does CapitaLand Limited’s Latest Acquisition in Malaysia Mean for Investors?

CapitaLand Limited (SGX: C31) announced yesterday that one of the real estate investment trusts under its management, the Malaysia-listed CapitaMalls Malaysia Trust (CMMT), will be making its second major acquisition after its listing in 2010.

Besides managing CMMT, CapitaLand is also the sponsor and a 36.32% owner of the trust. The deal, which was first announced in January this year, involves Tropicana City Mall, Tropicana City Tower, and their related carparks. The properties are expected to be collectively priced at RM540 million and after the inclusion of all the relevant expenses, CMMT’s looking at a total sum of around RM565 million.

Currently, CMMT has four other retail properties in its portfolio and they’re all based in different parts of Malaysia:

  1. Gurney Plaza in Penang
  2. The Mines in Kuala Lumpur
  3. Sungei Wang Plaza in Selangor
  4. East Coast Mall in Kuantan

To pay for the acquisition, CMMT is looking to issue up to 299.6 million new units of itself in a private placement to raise proceeds of up to RM395.5 million. That represents 70% of the acquisition cost and the remaining 30% will be covered with borrowings.

CapitaLand has already indicated its desire to subscribe for 36.32% of the new units (around 108.8 million units) that will be issued by CMMT. The trust’s bankers will help seek other institutional buyers for the rest of the units on offer.

Given the valuation of the three properties as laid out in the deal, CMMT expects to achieve a net property income yield of about 6.1%. The retail arm, Tropicana City Mall, has an occupancy rate of 90.8% at the moment. Meanwhile, the office tower has an occupancy rate of 100%.

CMMT’s Manager is confident that Tropicana City Mall still has room for asset enhancement initiatives which might help create an additional 6,000 square feet of net leasable area for the property, thereby potentially increasing the REIT’s net property income yield for the acquisition.

Foolish Summary

In conclusion, the acquisition will increase the net lettable area of CMMT’s portfolio by 22% and the value by 17%.

It’s worth noting that these figures have yet to factor in any potential improvements to the properties that CMMT can implement, so it’s possible that CMMT’s net lettable area and portfolio value may yet increase even further in the future as a result of the acquisition. If the improvements really can be made, then CapitaLand, by virtue of its management of and ownership stake in CMMT, may stand to benefit too.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.