CMT buys Clarke Quay for $268m

Seller CapitaMalls Asia says right time to monetise property as it has stabilised

CAPITAMALL Trust (CMT) has agreed to buy Clarke Quay from parent company CapitaMalls Asia for $268 million in cash, the two companies said yesterday.

The purchase will increase CMT’s asset size to $7.6 billion, from $7.4 billion as at end-2009.

Both CMT and CapitaMalls Asia are units of CapitaLand, Singapore’s largest property group by market capitalisation.

CapitaMalls Asia was created after CapitaLand spun off and listed its retail arm late last year. CMT, Singapore’s largest real estate investment trust, was sponsored by CapitaLand and listed in 2002.

CapitaLand carried out several major asset enhancements of Clarke Quay between 2004 and 2006 to reposition it as a one-stop entertainment and lifestyle hub. It also refreshed Clarke Quay’s tenancy mix to ensure that it remains a vibrant lifestyle destination. Visitor traffic has doubled to nearly one million monthly today from about 500,000 visitors before the asset enhancement.

‘The acquisition of Clarke Quay complements CMT’s current portfolio of mainly suburban malls catering for necessity shopping,’ said Simon Ho, chief executive of the trust’s manager. ‘It increases the number of properties that we have catering for discretionary consumer spending and will enable us to ride on the long-term remaking of Singapore as Asia’s leading convention, exhibition, leisure destination and services centre.’

CMT’s portfolio now consists of 14 retail properties including Tampines Mall, Plaza Singapura and Raffles City Singapore.

Mr Ho added that when the repositioning of Clarke Quay was completed in December 2006, it did not yet have an established track record of operations and some leases were committed below market rent. There is therefore potential for rental upside when leases become due for renewal in the next few years, he said.

On its part, CapitaMalls Asia is monetising Clarke Quay to recycle capital for new investment opportunities.

‘This is the right time to monetise Clarke Quay as the property has stabilised,’ said Lim Beng Chee, chief executive of CapitaMalls Asia. ‘There is growth potential in Clarke Quay which is best realised through our stake in CMT going forward, after CMT has acquired the property from us.’

CapitaMalls Asia has an interest of about 29.9 per cent in CMT. It also fully owns CMT’s manager.

The price represents a 2.3 per cent premium over the valuation of $262 million as at end-2009, as well as a 5.9 per cent yield on Clarke Quay’s net property income of $15.8 million in 2009.

The transaction, which is conditional upon CMT unitholders’ approval, is expected to be completed by July 2010.

CMT said that based on its closing price of $1.73 on Feb 8, 2010, CMT’s distribution yield is 5.1 per cent and the implied property yield is 4.9 per cent. As such, the transaction is expected to be yield-accretive.

The trust added that it has sufficient financial flexibility and capacity to fund this transaction. Assuming the transaction is fully funded by debt, CMT’s gearing would be 33.1 per cent – still within its target range of 30-35 per cent.

CapitaMalls Asia lost 2 cents to close at $2.22 yesterday while CMT gained 4 cents to close at $1.77.

Source : Business Times – 10 Feb 2010