Divesting 3 Damansara Office Tower for RM52.0mn

CapitaLand Malaysia Trust (CLMT) has signed an unconditional sale and purchase agreement with Lagenda Harta S/B, a wholly owned subsidiary of Lagenda Properties Bhd for the disposal of 3 Damansara Office Tower in Petaling Jaya, Selangor for RM52.0mn. The sale price represents a 4.0% premium over the property’s latest market value of RM50.0mn, as appraised by Henry Butcher Malaysia Sdn. Bhd, an independent market valuer. According to the announcement, the disposal is expected to be completed by 1Q24.

The 3 Damansara Office Tower is part of the integrated development of 3 Damansara Property, which also comprises a 4-storey shopping mall together with its car park known as 3 Damansara. Located in Petaling Jaya, the property is a freehold, stratified asset with a total net lettable area of over 101,000 sq ft. See Figure 1 for more additional property information.

Our View

The proposed disposal is consistent with CLMT's primary objective of consistently delivering sustainable income distributions to its unitholders. We believe that CLMT’s proactive approach to evaluating asset value and yield potential under varied market conditions has yielded positive results. In the past year, CLMT has expanded its portfolio with the acquisition of two logistics assets and one retail asset, collectively valued at RM1.1bn.

That said, we consider this disposal as a constructive step taken by CLMT to improve the quality of its portfolio by monetizing this non-core, underperforming office asset. With the Klang Valley office space market facing potential pressure due to oversupply, this divestment comes at an opportune time, especially considering the sale price exceeds the property's valuation.

According to the announcement, the net proceeds after divestment costs are approximately RM50.5mn and will be used to repay existing borrowings. It is expected to reduce CLMT’s gearing ratio from 44.1% as of 30th June 2023 to approximately 43.5%. The proceeds from this divestment will also provide CLMT with financial flexibility to enhance its portfolio diversification efforts and pursue higher-yielding opportunities in the emerging sectors such as the logistics sector.

Impact

We maintain our FY23-25 earnings forecasts. The disposal will give rise to a net disposal gain of RM0.4mn. Due to the property's low occupancy rate of 30% and its relatively small size, we anticipate that the impact on earnings will be negligible.

Valuation

We maintain our Buy recommendation on CLMT with an unchanged TP of RM0.65, based on a targeted yield of 7.5% to our CY24 DPU projection of 4.9sen/unit.

Source: TA Research - 6 Sept 2023