PETALING JAYA: WCT Holdings Bhd
’s proposed Paradigm real estate investment trust (Paradigm-REIT) will be a key component of the group’s broader deleveraging plans, according to CIMB Securities.
“Based on our preliminary estimates, the disposal consideration of RM2.4bil for the aforementioned retail mall assets is about 9% higher than our existing valuations and could potentially bump up our sum-of-the-parts-based target price to RM1.47 a share.
“We also estimate that the prospective yield for the planned REIT could be in the region of 6% to 6.5%,” it said in a report on the group.
Additionally, CIMB Securities stated that its initial calculations indicate that the exercise could lift WCT’s financial year 2024 (FY24), FY25 and FY26 core net profit by 73%, 51% and 31%, respectively.
This was premised on three key assumptions – namely combined net profit of RM51mil for retail mall assets, interest savings of RM50mil from retirement of debts and projected dividend distribution of RM32mil from Paradigm-REIT.
“Nevertheless, we maintain our ‘buy’ rating and earnings forecast for now, pending finalisation of the REIT’s approval process,” it added.
WCT had proposed to establish a REIT vehicle which will house three of its retail mall assets – namely Bukit Tinggi Shopping Centre (BTSC), Paradigm Mall Petaling Jaya and Paradigm Mall Johor Baru.
Under the exercise, the group will dispose of the three malls to Paradigm-REIT for a total amount of RM2.4bil.
The proposed disposal will be satisfied via the issuance of 1.6 billion new Paradigm-REIT units and RM837mil in cash.
To go into more detail, CIMB Securities said some of the 560 million units will be offered via an initial public offering or IPO, while for the cash portion, it was noted that Paradigm-REIT intends to fund it through the issuance of a medium-term note programme.
“From the estimated gross proceeds of RM1.4bil that will be raised from the REIT exercise, WCT will utilise RM838mil to repay its borrowings and another RM533mil to retire the existing debts of BTSC and Paradigm Mall Johor Baru,” the research house stated.
CIMB Securities added that according to pro-forma estimates, WCT’s net gearing ratio is estimated to decrease from 73% as of FY23 to 33% once the proposed REIT is established.
Post-restructuring exercise, WCT’s effective stake in Paradigm-REIT is expected to be 60.7%.This is inclusive of the 10% that is held through its 70%-stake in Jelas Puri.
WCT currently holds a 100% stake in both BTSC and Paradigm Mall Johor Baru and 70% in Paradigm Mall Petaling Jaya.
In relation to that, Paradigm-REIT will apply to be listed on the Main Market of Bursa Malaysia and the entire corporate exercise is expected to be completed by the first quarter of 2025.
