Acquiring Three Industrial Properties Under Construction for RM72mn

CapitaLand Malaysia Trust (CLMT) has entered into an agreement to acquire three freehold industrial properties from Rainbow Entity Sdn. Bhd., a subsidiary of Bursa Malaysia-listed Gromutual Berhad, for RM72.0mn. The properties are strategically located within Senai Airport City (SAC), a key industrial and manufacturing hub in the Johor-Singapore Special Economic Zone (JohorSingapore SEZ) – see Appendix 1.

An independent valuation by Nawawi Tie Leung Property Consultants Sdn. Bhd. has assessed the market value of the properties at RM72.5mn, closely aligning with the agreed purchase price.

The acquisition will be entirely funded through bank borrowings and is targeted for completion by the second half of 2025.

More about the Properties

The acquisition comprises three single-storey detached factories, each with an annexed two-storey office block, spanning a total built-up area of 183,785 square feet (sq ft) – see Appendix 2. Currently under construction, the properties are slated for completion in the first quarter of 2025. Notably, the freehold properties are approved for medium industry use.

According to the announcement, CLMT is in the final stage of securing a sevenyear long-term lease for one of the three properties. The lease features built-in rent escalations, offering income stability for CLMT’s portfolio. The prospective tenant, a company listed on the Shanghai Stock Exchange STAR Market, operates in the life sciences industry.

Potential to Generate a 7.1% Yield

We understand that management is actively working to secure tenants for the remaining two properties. Once fully leased, the properties are projected to generate an annual gross rental income of RM5.1mn, translating to a gross yield of approximately 7.1%. This yield is considered competitive, as it falls within the typical 6-8% rental yield range for industrial properties.

Our View

Marking CLMT’s second venture into the thriving industrial sector in Johor, we view this acquisition positively as it aligns with CLMT's growth strategy and diversification efforts.

Since 2024, CLMT has proposed approximately RM280mn in industrial and logistics acquisitions, including the latest RM72mn transaction. Key deals include:

• February 2024: Acquisition of three freehold industrial factories in Nusajaya Tech Park, Johor for RM27mn, completing in 2H 2025.

• December 2024: Acquisition of a freehold modern automated logistics property in Selangor for RM180mn, also completing in 2H 2025.

Upon completion of these transactions, CLMT’s portfolio will expand to 15 properties, with industrial and logistics assets increasing from 10% to 18% of its total net lettable area, reaching approximately 4.7 million square feet. Its industrial and logistics assets under management will also grow from 2.8% to 7.9%.

In terms of earnings impact, we estimate that the contribution from industrial and logistics properties to total net property income (NPI) will rise from 3.1% to 8.8%. Meanwhile, assuming all ongoing acquisitions are funded through borrowings, CLMT’s gearing ratio is expected to rise from 41.3% at the end of December 2024 to 44.4%.

Impact

Assuming an NPI margin of 90% and full lease commencement by January 2026, the proposed acquisition is expected to lift our earnings forecasts by 1.6% in FY26 and 1.5% in FY27. However, we are maintaining our current forecasts until the transaction is finalised.

Valuation

We maintain our Buy recommendation on CLMT with an unchanged TP of RM0.82, based on a target yield of 6.25% and a 3% ESG premium.

Source: TA Research - 6 Feb 2025