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CMMT aborts Tropicana deal

KUALA LUMPUR: CapitaMalls Malaysia Trust (CMMT) has aborted its proposed acquisition of Tropicana Corp Bhd’s assets — Tropicana City Mall and Tropicana City Office Tower.

In a filing with Bursa Malaysia yesterday, CapitaMalls REIT Management Sdn Bhd, manager of CMMT, said “both parties are unable to mutually agree on the terms of the sale and purchase agreement”.

Separately, Tropicana announced that both parties were unable to conclude the terms of the sale and purchase agreement and have mutually agreed not to pursue the proposed disposal.

Tropicana had on Aug 23 sent a letter of intent  (LoI) to CMMT offering it the opportunity to explore the acquisition of the four-storey shopping mall, along with its three basement levels and part of its lower ground comprising 1,759 parking bays, and the 12-storey office building, both located in Petaling Jaya.

Tropicana granted CMMT an exclusive period of four weeks from the date of the LoI to undertake due diligence on the proposed disposal.

A banker said the deal could have fallen through because of a mismatch in the pricing expectations of both parties.

“At the reported price tag of RM550 million to RM650 million, Tropicana could not meet the yield requirement of CMMT.

“But this does not mean that the parties have reservations on the quality of the assets,” she said.

JPMorgan in its August report pointed out that a price tag of RM1,146 to RM1,375 per sq ft, translated into a net rental yield of no more than 5%. Hence, the pricing appeared slightly on the steep side.

“Recent revaluation of retail malls belonging to M-REITs [Malaysian real estate investment trusts] showed property rental yields ranged from 5.7% to 6.8%,” it said.

CMMT’s average yield for its asset portfolio stood at 6.7% for 2012 and 2011, according to its annual report.

Nonetheless, JPMorgan said the acquisition could be good in the longer term, citing the prime location of the assets and CMMT’s track record of turning around malls, such as The Mines in Kuala Lumpur and Gurney Plaza in Penang.

“The mall [Tropicana City Mall] has a prime location in the Klang Valley with the surrounding affluent neighbourhoods serving as a good catchment area,” it said.

According to Tropicana’s latest annual report, the shopping mall, completed in 2008, has 436,447 sq ft of net lettable area (NLA) and a value of RM441.44 million as at September 2012.

The office tower, completed in 2010, has 101,246 sq ft of NLA and a value of RM61.68 million.

The total value of the two buildings in Tropicana’s books amounted to RM503.12 million. The value per sq ft is RM1,011 for the mall and RM609 for the office tower.

Tropicana has been aggressively monetising its assets through land sales and the disposal of investment assets as part of its de-gearing exercise.

According to an RHB Research briefing note dated Aug 30, 2013, Tropicana completed total land sales of RM149 million in the first half of 2013 and aims to complete another RM197 million worth of land sales in the second half. Future land sales could amount to RM403 million.

The report also said Tropicana had plans to dispose of some RM883 million worth of investment properties, including Tropicana City Mall, Tropicana City Office Tower and Dijaya Plaza.

RHB Research has forecast that Tropicana’s net debt to equity ratio would fall from 75% in December 2012 to 55.9% in December 2013.

In another report, the research house said it was positive on the potential acquisition by CMMT of Tropicana City Mall and the office tower, saying that it could boost earnings for the REIT.

However, it expects CMMT to consider acquiring only the mall, given its focus on retail assets. CMMT’s sister REIT, Quill Capita Trust which is also part of CapitaLand Group, focuses on commercial assets.

“Assuming a valuation of RM1,400 to RM1,600 per sq ft, the mall could be worth about RM600 million to RM700 million, which could translate into total incremental revenue of about RM31 million to RM42 million, assuming yields of about 5% to 6%,” said RHB Research. “This could potentially mitigate the stagnating income from Sungei Wang Plaza,” it said.

CMMT’s shopping mall portfolio comprises Gurney Plaza, Sungei Wang Plaza in Kuala Lumpur, The Mines and East Coast Mall in Kuantan. Sungei Wang Plaza is currently undergoing refurbishment works which are expected to be completed this year.


This article first appeared in The Edge Financial Daily, on October 30, 2013.

 

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