KEY INVESTMENT HIGHLIGHTS

• WCT proposes disposal of 3 malls to upcoming Paradigm REIT for RM2.44b
• Paradigm REIT to fund purchase via cash from MTN issuance and 1.60b new units
• WCT expected to hold about 60.7% stake in Paradigm REIT
• Maintain NEUTRAL with unchanged TP of RM0.97

Proposed disposal of 3 malls to REIT. More details have emerged on WCT Holdings Berhad's plans to set up and list a REIT, which will be known as Paradigm REIT. For this purpose, the group is proposing a disposal of three of its shopping malls to the REIT for RM2.44b. These are the Bukit Tinggi Shopping Centre in Klang (master leased to AEON), Paradigm Mall Petaling Jaya and Paradigm Mall Johor Bahru. See Table 1 below for further details.

Disposal consideration. Subject to approval from the Securities Commission (SC), WCT's subsidiaries and JV company that own the three malls will each enter into a sale and purchase agreement with RHB Trustee, acting on behalf of Paradigm REIT as the purchaser, after its proposed establishment. Paradigm REIT will fund the purchases via the issuance of 1.60b new units at RM1 per unit and a cash consideration of RM837m, which will be funded via the issuance of medium-term notes (MTNs) under an MTN programme that will be established by a special purpose vehicle that will be wholly owned by Paradigm REIT.

Listing of Paradigm REIT. An application will be made to Bursa Securities for the listing and quotation for the new units on the Main Market. Of the 1.60b units, 560m units or 35% will be made available for sale whereby up to 305.3m units (19.1%) are for institutional offering and up to 254.7m units (15.9%) for retail offering. We estimate that WCT's effective stake in Paradigm REIT would be 60.7%. This will be summarised in Table 2 below. Application to the relevant authorities for the proposals are expected to be submitted within two months and the timeframe for completion is expected to be by 1QCY25.

Management of the REIT. The proposed management company of Paradigm REIT is Paradigm REIT Management Sdn Bhd (formerly known as WCT REIT Management Sdn Bhd), an 80% jointly controlled entity under WCT. The proposed property manager is Henry Butcher Malaysia (Mont Kiara) Sdn Bhd.

Use of proceeds. The cash proceeds from the proposed mall disposals and the proposed offering from Paradigm REIT (assuming issue price of RM1 per unit) would come up to RM1.40b, of which RM838.0m will be used to repay WCT's borrowings within 12 months and RM533.2m to repay the borrowings of Gemilang Waras Sdn Bhd and WCT Hartanah Jaya Sdn Bhd, both indirect wholly owned subsidiaries of WCT.

Source: MIDF Research - 19 Sep 2024