Happy Weekend tigers!
Recently NTUC has been marketing its retail portfolio of S$4billion, with a number of prominent bidders such as CapitaLand, Frasers, Link Reit andeven Far East organisation. The portfolio includesvery well-located shopping malls including AMK Hub, Jurong Point, NEX and Swing By@Thomsan Plaza.
Bloomberg reports on 21 July that CICT and Link Reit are the among the top bidders for the shopping mall portfolio.
Firstly, I don't think these acquisitions will be accretive at this moment. Based on lendlease's recent acquisition of JEM, the entry yield for these should be 3-4%. Interest rate in SG has risen significantly, and cost of equity fund raising will be high since REIT price has gone down significantly.
For CICT, they just completed the acquisition of 79 Robinson Road. Prior to that they bought a number of Australian office. Their end gearing should be around 41%. With such tight debt headroom, it is almost impossible for CICT to swallow a 4billion portfolio by itself, unless it issued rights offering at a significant discount to dilute existing shareholders which is not optimal. Link Reit doesn't have the experience to manage SG retail assets, and if it's gearing exceed 30% it may trigger acredit rating downgrade.
I think the most possible transaction would be CICT and Link Reit JV to acquire the entire portfolio. This is more palatable for both to swallow. However, both Reit still has to convince their unit holders on the merits of this deal. If the cost of funding cannot be contained, it's very hard to present a DPU-accretive scenario to their unitholders.
Tigers what do u think?
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