3 reasons why CapitaMalls Asia's Wuhan mall is a genius move

The $128.4m site is really worth it.

According to CIMB, CMA has acquired a shopping-mall site in Wuhan, China, deepening its exposure to this city to four malls. Entry cost looks reasonable, with a yields-on-cost target of 8-9% (after one rental cycle), achievable in our view.

The site could be recycled to its PE fund in the future, the firm believes. The acquisition is not expected to move RNAV much.

Here's more from CIMB:

We lift our RNAV and target price (10% discount to RNAV) on a higher CRCT share price and slight accretion from this acquisition.

CMA has acquired a shopping-mall site in Wuhan, China for Rmb660m or S$128.4m. On GFA of 240k sm, entry cost is Rmb2.7k psm with a project development cost of Rmb17.7k psm NLA, based on our estimates.

Around 33% of the site’s GFA (80k sm) is slated for office development, which CMA may dispose of or develop. The site is located in Qiaokou District, a 10-minute train ride from the city centre.

Construction of the mall is expected to start at end-2013 and end by 2015. The mall is positioned to tap the city’s growing middle class. This is CMA’s fourth shopping-mall development in Wuhan.

The acquisition is not expected to move RNAV much, though we identify some positives: 1) this fourth acquisition in Wuhan is in line with the group’s intention to break deeper into its core markets; 2) CMA has an 8-9% yields-on-cost target after one rental cycle, translating into gross rents of Rmb180-200 psm. We believe this is achievable; and 3) Capex commitments though expected to rise again remains fluid as the development could be recycled to its China Development Fund III in the future.

The fund is only 50% invested at the moment.

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