News /  Comments

• After over 3 years of listing, PREIT finally announc e its intention to acquire da:mén USJ for total price of RM488m. We think that the purchase consideration is fairly valued after comparing latest available appraised value of malls nearby the area. Mall NLA (psf) Latest appraised value (RM) Value RM/psf Sunway Pyramid 1,610,384 RM3.2bn RM1,987 Subang Parade 504,681 RM417.7m RM827 Da:men 420,920 RM488m RM1,140 Source: HLIB Research, Sunway REIT, Hektar REIT

• Da:mén mall consist of 5 storey retail mall and two levels of basement car park, located behind Giant Mall USJ 1 and next to The Summit.

• Post-acquisition, P REIT’s investment properties will jump from RM4.4bn to RM4.9bn while its geographical diversification will be extended to Subang Jaya. We remain cautious on the acquisition given plenty of mall supply in surrounding area (i.e. Sunway Pyramid, The Summit, Subang Parade, Empire Shopping Gallery) and Da:men has yet to commence operation.

• Acquisition is expected to be fully funded by debt facility and gearing ratio is expected to increase to 23% from 15%.

• Da:mén is expected to commence operation in November this year and acquisition exercise is estimated to be completed in 1Q16.

• Management guided that they are targeting da:mén mall to contribute RM35m at NPI level, which translate into a decent gross yield of 7.2%.

Risks

• Limited portfolio diversification (in terms of market segment) and internal pipeline
• Intensifying competition
• Exposure to rising inflation.

Forecasts

• As we impute in average rental rate of RM9.20 and occupancy rate of 85% for da:mén in 2016 (as per management guidance), our DPU assumption for FY16-17 grew by 4-9%, respectively.

Rating

HOLD , TP: RM1.52

Positives:

• Enjoys the largest direct exposure to the super-prime Bukit Bintang stretch via Pavilion Mall.
• Strong branding and rental reversions.
• Well-managed tenant mix. Negatives:
• Over-supply of office space in Klang Valley.

Negatives

• Consumer sentiment as a result of GST implementation.

Valuation

• Maintain HOLD recommendation on the equity but our TP lifted to RM1.52 (from RM1.47) with new DPU forecast.
• Targeted yield remains at 5.7%, derived from historical average yield spread of Pavilion REIT and 7-year MGS.

Source: Hong Leong Investment Bank Research - 18 Sep 2015