CMMT considering rights issue

KUALA LUMPUR (Nov 29): CapitaMalls Malaysia Trust (CMMT), a unit of Singapore's CapitaLand Ltd, is considering a rights issue to boost its coffers as it seeks to bulk up on more retail assets here.

Sharon Lim, CEO of CMMT's manager, CapitaMalls Malaysia REIT Management Sdn Bhd (CMRM), said the REIT is engaging regulators and merchant bankers to assess the feasibility of a cash call, having already done two rounds of unit placements that raised a total of RM483.55 million this year.

"We have always looked at the possibility of doing a rights issue," she told The Edge Financial Daily in an interview, adding that the exercise allows it to tap funds from its existing retail and institutional unitholders.

To be sure, making a cash call amid current market uncertainties risks putting off existing unitholders, especially retail investors who may be less keen on forking out more money. "People invest in property trusts for the generous dividends. It is likely they would not like cash calls, which means they need to fork out money instead of getting dividends," said a market observer.

That said, it is likely that if CMMT decides to make a rights issue, the decision would come with plans that would demonstrate the REIT's ability to deliver even better returns to unitholders in future. "It is not likely to be a pre-emptive cash call. I'd expect them to have some plans in place to tell unitholders," the observer added.

If it happens, the rights issue would be CMMT's first since its IPO in July 2010. Notably, while the issuance of new units in placements dilutes the stakes of existing holders, the exercise could bring strong institutions to its list of unitholders. The Government of Singapore Investment Corp, for instance, emerged as a substantial unit holder in CMMT in October after acquiring 5.64% of CMMT via a private placement, filings with Bursa Malaysia showed.

Lim declined to specify growth targets for CMMT's total asset base, only indicating that its parent CapitaLand's expansion strategy entails doubling its asset size every three to five years. Using that as a benchmark, CMMT could see its assets double to about RM5.6 billion within five years.

She also pointed out that CMMT would grow via organic means apart from acquisition of more retail properties. Organic expansion is in the form of refurbishment of existing properties to maximise rental income.

With the inclusion of the East Coast Mall, CMMT now has four retail properties in its portfolio which includes Gurney Plaza in Penang, Sungei Wang Plaza in Kuala Lumpur and The Mines shopping centre in Selangor. Following its latest unit placement and asset acquisition, the property trust's total asset base is now valued at some RM2.8 billion, compared with about RM2.1 billion when it was listed on the Bursa Malaysia Main Market last July.

On existing malls, CMMT had refurbished Gurney Plaza where car park lots were converted into new shops. It had also renovated Sungei Wang Plaza and The Mines.

Geographical diversification features prominently in CMMT's expansion. Looking ahead, Lim said the property trust is considering acquiring retail assets in Sabah, Sarawak and Johor. That is provided the target properties can offer sustainable rental income and growth prospects within a good catchment area.

Of interest is CMMT's strategy of acquiring malls not only in prime areas such as the Klang Valley and Penang but also in smaller towns. A case in point is the recent purchase of East Coast Mall in Kuantan, Pahang. In less prime locations, Lim said CMMT would opt to acquire a key retail centre which is seen as" the mall" frequented by locals within the area.

In terms of targeted returns from the properties it acquired, CMMT is expecting net property income (NPI) yields of between 6% and 7%, derived from dividing its NPI by the market value of its properties, Lim said.

On annual growth, she said CMMT aims to grow its distributable net profit and dividend per unit (DPU) by between 4% and 5% a year, which is higher than the country's inflation rate. But that's a conservative target assuming that the property trust embarks purely on organic growth.

CMMT, which pays dividends on a semi-annual basis, is targeting a DPU payout of not less than 7.46 sen in the current year ending Dec 31. It intends to distribute 100% of its distributable income in FY11.

The property trust had paid out cumulative DPU of 3.9 sen for the first nine months of the year, translating into an annualised figure of 7.8 sen. This works out to a 5.7 % yield based on its closing price of RM1.35 last Friday, which valued CMMT at RM2.38 billion. CMMT has gained 21% this year versus the FBM KLCI's 6% decline.

As at Sept 30, CMMT had debt obligations of RM839.8 million compared with total assets of RM2.57 billion, translating into a gearing of 33%. With the inclusion of the RM310 million East Coast Mall, CMMT's total assets have increased to about RM2.8 billion, which bring gearing down to 29%. That gives it some headroom to gear up, should it choose to, given a debt ceiling of 50% of total assets.

Lim said CMMT would still be comfortable with a gearing of 40%. And should its debt level near the prescribed 50% limit, she said the property trust would issue new equity to raise funds to lower its gearing.