KUALA LUMPUR: Tropicana Corp Bhd’s proposed sale of Tropicana City Mall to CapitaMalls Malaysia Trust (CMMT) for RM540 million, will see the former’s net gearing lowered from 0.72 times as at Sept 30, 2014 to 0.52 times. Both parties announced the deal yesterday. 

CMMT said Amtrustee Bhd had on its behalf entered into a conditional sale and purchase agreement with Tropicana City Sdn Bhd, a wholly-owned subsidiary of Tropicana (fundamental: 1.3; valuation: 3.0), for the acquisition of Tropicana City Mall.

In a filing with Bursa Malaysia, CMMT (fundamental: 1.8; valuation: 0.5) said the four-storey mall, together with the 12-storey Tropicana City Office Tower, will be acquired for a total purchase consideration of RM540 million, in cash.

The real estate investment trust (REIT) said the residential tower of Tropicana City, the Tropics, is not part of the proposed acquisition.

“The proposed acquisition of Tropicana City Mall will strengthen CMMT’s portfolio as it is an established family lifestyle mall that has proven to be a popular destination among the surrounding residents, thanks to its variety of local and international retailers,” said Low Peck Chen, chief executive officer of CMMT’s manager CapitaMalls Malaysia REIT Management Sdn Bhd (CMRM).

CMMT intends to finance the acquisition through debt and/or equity fundraising via the issuing of new units, with the proportion of the financing to be determined later.

“This proposed acquisition will thus further expand CMMT’s portfolio in terms of both income and geographical spread, and enable CMMT to continue to deliver stable returns to our unitholders,” said CMRM chairman David Wong Chin Huat.

The acquisition is expected to be completed by the third quarter of 2015.

Tropicana, meanwhile, said the disposal of the mall will positively impact its earnings and balance sheet.

“Upon completion, Tropicana group’s borrowings would be reduced to RM1.95 billion, from RM2.41 billion as at Sept 30, 2014, hence reducing the group’s net gearing to 0.52 times from 0.72 times.

“Tropicana is expected to recognise a fair value gain of RM13.1 million for the financial year ended Dec 31, 2014, with an additional gain on disposal of RM13.5 million to be recognised in the financial year ending Dec 31, 2015,” said the group.

CMMT was initially looking into the purchase of the mall two years ago, at a purchase consideration of between RM550 million and RM650 million, as reported by The Edge Financial Daily in Aug 2013.

However, the proposal was aborted in October 2013, as both CMMT and Tropicana could not agree on the terms of the sale and purchase agreement.

CMMT closed eight sen or 5.13% higher to RM1.64, bringing its market capitalisation to RM2.78 billion.

Tropicana closed one sen or 0.95% lower to RM1.04, with a market capitalisation of RM1.44 billion.

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This article first appeared in The Edge Financial Daily, on January 27, 2015.