Acquiring 3 Freehold Ready-Built Factories in Johor for RM27.0mn

CapitaLand Malaysia Trust (CLMT) has entered into a conditional sale and purchase agreement to acquire 3 freehold ready-built factories located at the Nusajaya Tech Park in Iskandar Malaysia, Johor from Nusajaya Tech Park Sdn Bhd for RM27.0mn. Nawawi Tie Leung Property Consultants Sdn Bhd, an independent market valuer, has assessed the properties’ market value at RM28.2mn.

The properties consist of 2 semi-detached factories and 1 detached factory, with mezzanine offices and guard posts – see Appendix 1 for more details. Nusajaya Tech Park, spanning 210 hectares in Gerbang Nusajaya, Iskandar Malaysia, Johor, is an integrated industrial development. Tailored for light to medium industries, it hosts multinational corporations and leading local enterprises across sectors such as aerospace, automotive electronics, precision engineering, IT, e-commerce, and data centres. Positioned just minutes from the Malaysia-Singapore Second Link Expressway, the park provides seamless connectivity to international airports and seaports in both Singapore and Malaysia. Refer to Appendix 2 for the location of Nusajaya Tech Park.

Fully Tenanted With 7.3% Yield

Comprising a total built-up area of 74,142 square feet, these properties are presently under full lease to two reputable tenants operating in the optics and medical sectors. The weighted average lease to expiry, based on rental income, stands at 5.2 years. Additionally, the incorporation of six-year lease terms, inclusive of built-in rent escalations ranging between 2% and 6% per annum, is anticipated to contribute to the overall income stability of the portfolio.

With a gross annual rental revenue of approximately RM2.0mn, the initial yield is projected to be around 7.3%, based on the acquisition price of RM27.0mn. The proposed acquisition will be fully funded by bank borrowings, and the deal should be completed by 4Q24.

Our View

We are positive on the deal. The acquisition price of RM364psf for the factory space in Nusajaya Tech Park is considered fair, given the current asking price range of approximately RM300 to RM400 psf for similar-sized factories, as indicated by various property websites. Additionally, the purchase price of RM27.0mn also reflects a slight discount compared to the independent market valuation. We estimate that the acquisition will result in a marginal increase in CLMT's gearing ratio from 42.4% (as at end-Dec 23) to 42.7%.

This marks CLMT’s first acquisition of industrial properties in Malaysia, extending its presence into the rapidly growing state of Johor. Note that the two previous non-retail assets acquisitions were logistics-oriented. This acquisition is consistent with CLMT's growth strategy and diversification initiatives. Following the acquisition, CLMT’s enlarged portfolio will consist of 10 properties, with the proportion of industrial and logistics properties increasing from 10% to 11% of the total portfolio's net lettable area, amounting to approximately 4.4mn square feet.

Impact

Assuming a blended net property income margin of 85% and leases starting in December 2024, the proposed acquisitions are projected to increase our earnings forecasts by 0.1%/1.1%/0.9% in FY24/25/26, respectively. We maintain our current earnings forecasts pending the completion of the deal.

Valuation

We maintain our Buy recommendation on CLMT with an unchanged TP of RM0.68, based on a targeted yield of 7.0% to our CY24 DPU projection of 4.7sen/unit.

Source: TA Research - 6 Feb 2024