WCT Holdings plans to launch a real estate investment trust (REIT) and list it towards the end of next year. It plans to REIT its PJ Paradigm and Bukit Tinggi AEON malls, with a combined NLA of 1.68m sf, next year and inject gateway@klia2 and JB Paradigm, with a combined NLA of 1.61m sf, two to three years later. The company plans to retain about 40% in the REIT. (Source: StarBiz)

Comments: WCT delayed its plan to set up the REIT from this year to end-2016 earlier. We understand that it is due to the low valuations with just two completed malls with total asset value of RM1.2bn to be injected into the REIT. WCT wanted to wait until its JB Paradigm mall is completed in 3Q16 to provide a firm pipeline for the injection of a third mall into the REIT and increase total asset value to an estimated RM2bn. The injection of its 70% stake in gateway@klia2 mall into the REIT is dependent on the approval to its request to extend the concession period to run the mall from 25 years currently to 35 years.

The listing of the REIT, which it plans to divest down to an associate stake post-listing, will reduce WCT’s high gearing of 72% as at end-1Q15 as most of the debts relate to financing its property investments. The delay in its listing plans is positive given the weak sentiment in the market currently and to realize better valuation for the REIT when the JB Paradigm mall is completed. We reiterate our BUY call on WCT with RM2.12 target price, based on FY16E PER of 14x.

Source: Affin Hwang Capital Research - 6 Aug 2015