Buying 50% of mall in Suzhou Industrial Park. CMA announced yesterday that it would acquire 50% of a shopping mall project in the Suzhou Industrial Park (SIP), in partnership with the master developer of the SIP CBD. Based on its 50% share, CMA would invest ~RMB 3.37b (S$637m) into the project with 50% debt financing. The mall is expected to have 310k sqm GFA (250k retail, 60k offices) and would be completed in 3-4 years. We understand from management that the SIP authorities awarded the stake to CMA despite other interested parties offering higher prices because CMA had a strong track record of mall management. See exhibits 1-7 for more details of Suzhou site.
Likely little effect on share price and RNAV. We believe that the market would be neutral on this acquisition, given macro headwinds and a fairly rich development cost ~RMB 22k psm GFA. Assuming average rents of RMB 220/sqm for retail and RMB170 for office at completion and a cap rate of 5.0%, we believe the price paid is fair but we see little accretion to CMA's RNAV at this juncture. Nevertheless, with CMA's gross retail asset exposure in China exceeding that in Singapore at time of completion for the Suzhou mall, it is likely that CMA's share price would be increasingly driven by the retail outlook in China, especially Shanghai.
Possible capital recycling over FY12-13. We estimate this acquisition would bring CMA's outstanding capital commitment up to ~S$2.7b over the next three years. Looking ahead, our numbers suggests CMA could enter into a phase of capital recycling over FY12-13, especially if management wishes to continue in an active acquisition stance while staying under 30% net gearing. However, divestments would also hinge on the overall market outlook ahead, as low unit prices/rich yields for CMT and CRCT could be obstacles to attractive divestment prices for CMA's mature assets.
Impending dual listing on HKex. CMA also updated this morning that it has received approval-in-principle from the Stock Exchange of Hong Kong. We understand that management is currently in discussion with several major shareholders about transferring their shares to the HKEX to achieve a reasonable float and liquidity there. The listing date is expected to be on 18 Oct 2011.
Maintain BUY. We update our model with latest assumptions and lower our fair value estimate to S$1.54 versus S$1.67 previously, mainly due to lower prices of its REITs holdings. Possible upside catalysts are divestments of mature assets and re-calibration of market expectations for a crisis scenario. Maintain BUY.
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