$CAPITALAND INTEGRATED COMM TR.(CPAMF)$
The sale of Mercatus’ S$4.1bn retail portfolio has created a buzz in the market.
The portfolio comprises of 4 suburban malls, where at least 3 out of the 4 assets are dominant malls in their respective suburban vicinity and located at big residential catchment areas and strategically located near key transport nodes.
CICT is probably the strongest contender among the local contenders for the portfolio, including Link REIT and FCT given its larger size and links to Temasek (same parent as Mercatus/NTUC). From CapitaLand and CICT’s perspective, they cannot afford to lose these prized assets to their competitors, especially after FCT bought over PGIM’s retail portfolio which already weaken CapitaLand’s dominance in the local retail property market. Moreover, CICT being the largest retail landlord in Singapore would be able to draw synergies and economies of scale when both portfolios are combined, and I don’t think NTUC would want to pass the ownership to a REIT entity controlled by foreign investors. Hence, I think that CapitaLand and CICT will do whatever it takes to secure this deal.
However, as of June 2022, CICT’s gearing is already at 40.6%, giving it limited debt headroom to leverage up for this mega acquisition. The other options are to find other investors (via CL’s private funds platform) to JV with CICT, or to follow FCT’s playbook and do a massive equity fund raising, which is the most probable route that CICT will take. Given LREIT’s acquisition of JEM is based on a 4% market cap rate, the Mercatus portfolio will not be cheap, but if CICT can sell a good story to the market it should be okay. I am closely monitoring the deal to see if CICT/Link REIT/FCT overpaid for this portfolio.
As a whole REIT, I am optimistic of CICT’s longer term growth. The DPU will be backloaded as occupancy just recently ramped up and has not contribute meaningfully to the bottom line. Short-term wise, share price may be diluted.
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