Quill Capita Trust; Buy; RM1.20
Price target: RM1.35 ; QUIL MK

Quill Capita Trust announced yesterday that it has entered into a heads of agreement with MRCB for the proposed acquisition of Platinum Sentral (which consists of 5 blocks of 4-7 storey commercial buildings, a multi-purpose hall and 2 levels of car park) for RM750m. The asset will be paid for via RM486m in cash (through borrowings and/or unit issuance) and RM264m by issuance of new units in Quill Capita Trust at RM1.32/unit (translating to 200m units), a 10% premium over yesterday’s closing price. Based on this payment mix, MRCB would emerge as a major shareholder with a 30% stake in Quill Capita Trust. Additionally, MRCB had entered into a share sale agreement to acquire a 41% equity stake in Quill Capita Management (the management company of Quill Capita Trust) from CapitaLand and Coast Capital Sdn Bhd for RM5.9m.

To recap, based on a 16 Aug 2013 press release from MARC with regards to ratings on MRCB Sentral Properties’ RM400m debt programme, Platinum Sentral comprises 449,973 sf NLA of office space, rented at RM8.70psf at full occupancy, and 78,813 sf NLA of retail space, rented at RM6.00psf at 20% occupancy. With this in mind, Quill Capita Trust’s purchase translates to RM1,418psf, within the range of KL Sentral property transactions. At this purchase price and taking the rentals and occupancies into consideration and a 78% and 70% NPI margin for the office and retail portions respectively, the asset may have been purchased at a 5% capitalisation rate. Assuming the RM486m was fully funded in debt, there may be EPU growth of 4% for FY14F.

We would like to note that this is not yet a sale and purchase agreement, and the acquisition would have to go through unitholders, Board of Director, Securities Commission and Bursa Malaysia approval before this progresses forward. From their announcement, a sale and purchase agreement would be entered into within 30 business days from the Heads of Agreement with a 15 business day extension. We maintain BUY for now with RM1.35 price target. 

Source: HwangDBS Research - 30 Jan 2014