Capital-efficient way to build up China malls
CMA has acquired Grand Canyon Mall in Beijing with CRCT exercising its ROFR to acquire the asset by 2Q14. With this deal, we believe CMA can deepen its presence in Beijing in a capital-efficient way, while enlarging its AUM. The mall is currently under-rented.
We adjust our FY13-15 core EPS by 0-1%and lift our target price (still on a 10% discount to RNAV) slightly on higher share prices for its listed associates and AUM fees. Maintain Outperform with catalysts expected from further improvements in NPI and yields on costs.
CMA has acquired Grand Canyon Mall in Beijing, China, from Capital Airport Real Estate Group for Rmb1.82bn (S$373m). This works out to Rmb26k psm GFA or Rmb42k psm NLA. The mall is located along the South Third Ring West Road in Fengtai District. CRCT has exercised its right of first refusal (ROFR) to acquire the mall, subject to the Chinese government’s approval and securing the requisite financing. Completion of this acquisition is expected in2Q14.
What We Think
While the deal alone may not lift RNAV much, it should allow CMA to deepen its presence in Beijing in a capital-efficient way and enlarge its AUM along the way, we believe. Together with CRCT, this mall will be CMA’s 10thin Beijing. At the point of divestment to CRCT, CMA will receive acquisition and fund management fees as the manager of CRCT. CMA expects more such deals if this proves to be a success. The 2010 completed mall is currently under-rented, with a low initial yield of 3.5%. However, around47% of the leases will expire in 2H13-2015(Figure4), with rents estimated at 35-90% below current market rates. We are assuming that NPI yields on costs will rise to 5.5% by end-2015. CMA/CRCT believe, through their expertise in operating retail malls in China, they will be able to generate a higher 7-8% NPI yield after 2016. CMA guided that the vendor’s core business is not in retail malls, which explains its below-market rents and intention to sell the asset.
What You Should Do
Maintain Outperform with catalysts expected from further improvements in NPI and yields on costs.
Publish date: 15/07/13