Here's how CapitaMalls Asia will benefit from Beijing asset acquisition

Management eyes 7-8% NPI yield post 2016.

According to CIMB, CMA has acquired Grand Canyon Mall in Beijing, China, from CapitalAirport Real Estate Group for Rmb1.82bn (S$373m).

CIMB noted that while the deal alone may not lift RNAV much, it should allow CMA to deepen its presence in Beijing in a capital-efficient way and enlarge its AUM along the way.

Here's more:

Together with CRCT, this mall will be CMA’s 10th in Beijing. At the point of divestment to CRCT, CMA will receive acquisition and fund management fees as the manager of CRCT.

CMA expects more such deals if this proves to be a success. The 2010 completed mall is currently under-rented, with a low initial yield of 3.5%.

However, around 47% of the leases will expire in 2H13-2015, with rents estimated at 35-90% below current market rates.

We are assuming that NPI yields on costs will rise to 5.5% by end-2015. CMA/CRCT believe, through their expertise in operating retail malls in China, they will be able to generate a higher 7-8% NPI yield after 2016.

CMA guided that the vendor’s core business is not in retail malls, which explains its below-market rents and intention to sell the asset.