CapitaMalls Asia

Kim Eng on 21 Feb 2012


Increasing stakes in three Japanese malls. CapitaMalls Asia (CMA) has acquired the remaining 73.71% stakes in three malls from CapitaMalls Japan Fund (CJF), in which it has a 26.29% stake. The acquisition price was S$217.4m (on a 100% basis) – a 16.9% discount to their latest valuations. While the acquisition increases CMA’s RNAV marginally by 1 cent per share, we think that it is a shrewd business move. Maintain Buy.


Pick of the best-performing malls. The acquisitions came as CJF is divesting the assets as the end of fund life draws near. The three malls acquired, namely, La Park Mizue in Tokyo’s Edogawa ward, Izumiya Hirakata in Hirakata City, Osaka, and Coop Kobe in Nishinomiya City, are the fund’s best-performing assets. All three malls are located near train stations and serve catchment populations of at least 400,000 residents.


High NPI yield and ROE. Based on CMA’s announcement, the three malls have a combined net property yield of 7.6%, higher than J-REITs’ trading yields of around 6%. CMA is looking at an ROE of over 12% on acquisition, with the three malls contributing an additional recurring PATMI of more than S$8m pa.


Makes perfect business sense. We believe these are shrewd acquisitions, given that the malls are already well-established and provide a reasonably high NPI yield of 7.6% while the cost of debt in Japan remains very low. Eventually, there may be opportunities to divest these malls to J-REITs at ~6% yields, which will allow CMA to further benefit from divestment gains.


Valuations are still attractive. The latest acquisitions demonstrate that management is not resting on its laurels and continues to seek a balance between growth and improving ROEs. 2012 is truly looking like the inflection point for CMA. Maintain Buy with the target price raised to $1.95, pegged at a 20% discount to RNAV.