The share price of CPN Retail Growth Leasehold REIT (SET: CPNREIT) rose 7.5% in the morning session, while Central Pattana Public Company Limited (SET: CPN) gained 2% after the announcement of CPNREIT’s lease extension of Central Pinklao, Central Rama 2 and fund-raising plan.
CPNREIT closed the morning session on Tuesday at THB11.50 per share, increased THB0.80 or 7.48%.
Meanwhile, CPN closed at THB64.00 per share, increased THB1.25 or 1.99%.
The rise, especially on CPNREIT, came after CPN announced that its Board of Directors approved the lease renewal of Central Pinklao, the amendment of lease agreement in Central Rama 2 and the investment in additional trust units of CPNREIT.
CGS-CIMB wrote in a note that it believed the amendment of the lease payment term of Rama 2 mall and shortened the lease period of Pinklao mall was to minimize potential dilution of dividend per unit (DPU) from a capital increase.
The brokerage firm also added that CPNREIT guided stable DPU in 2024-25F, same as in 2023F of around THB1.28, implying 11.9% yield. However, LTV ratio may go up to 50% as CPNREIT leverages up to finance the lease extension investment. The market also has concerns over the shorter lease term of Pinklao mall and rental fee payments of Pinklao and Rama 2 mall after the lease period expires. CGS-CIMB wrote that it is revisiting FY23-25F DPU forecasts.
CPN would like the fund-raising plan to succeed as it plans to increase the stake from 30.3% to 40%, according to the note. CGS-CIMB estimated an increase in D/E to 0.91x from 0.84x as end-1Q23, which is still below the debt covenant at 1.75x. CPN may have to consolidate CPNREIT into its financial statements.
In addition, this would increase CPN’s rental revenue and interest expenses but reduce management fee from consolidation of CPNREIT. Thus, CGS-CIMB expected CPN to reduce shareholding in CPNREIT when the share price recovers. The firm maintained an ‘Add’ recommendation on CPN with a target price of THB83.50 per share.
