Retail REITs - DBS Research 2022-08-10: May The Best Man Win Mercatus

Retail REITs - May The Best Man Win Mercatus

Singapore Retail REITs - DBS Group Research | SGinvestors.ioCAPITALAND INTEGRATED COMM TR (SGX:C38U) FRASERS CENTREPOINT TRUST (SGX:J69U) LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)
  • Bids are in for Mercatus retail portfolio; key retail-focused landlords in Singapore and Hong Kong are reportedly interested.
  • Positive implications for CapitaLand Integrated Commercial Trust tapping sponsor for capital a likely strategy.
  • HKSE listed Link REIT has financial muscle to be competitive, with enough debt-funded headroom for this deal.
  • We believe that other potential contenders (Frasers Centrepoint Trust, Lendlease REIT-led consortiums) could be conservative in their bids given the significant equity commitment.

Bids are in for Mercatus!

CapitaLand Integrated Commercial Trust: Will it try on its own?

  • A portfolio in its “own backyard”, we see it as a good fit with CapitaLand Integrated Commercial Trust’s portfolio and believe that they can be competitive and have the financial muscle to undertake this deal. That said, the REIT may need to raise close to S$1.2bn in equity (8% of market cap), which may be a tough endeavour in our view, given the current market conditions.
  • That said, we believe that the likely strategy is to tap into its sponsor/third-party capital to reduce its own capital commitment in pursuing this deal. On its own, CapitaLand Integrated Commercial Trust can deliver an accretion of up to 0.3% but could see gearing heading towards 45%.

Link REIT: First foray in Singapore.

  • If Link REIT turns out on top, we believe that investors will reward Link REIT with higher valuations, given its pivot back to retail (~71% from 68% of assets), while improving the overall resilience of its earnings profile. A fully debt-funded deal will bring gearing to ~32%, with accretion ranging between 2.1%-2.8% of FY3/24F DPUs, based on our estimates.
  • That said, we believe that Link will likely look to tap into third-party capital (or vendor) to keep its gearing < 30% in the medium term in order to maintain its credit rating.

Other potentially interested parties (Frasers Centrepoint Trust / Lendlease REIT, amongst others).

  • While we believe that the portfolio fits Frasers Centrepoint Trust “like a glove” in terms of suburban exposure and will enable it to further entrench itself in the suburban retail space.
  • That said, the size of the deal, at ~ S$4.0bn implies significant equity fund raising requirements that may mean relying on their sponsor for more capital.
  • Meanwhile, though this deal is a strategic move, Lendlease REIT (SGX:JYEU) management recently took themselves out of the running for this portfolio.




Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.




Derek TAN DBS Group Research | Jeff YAU DBS Research | Rachel TAN DBS Research | https://www.dbs.com/insightsdirect/ 2022-08-10
SGX Stock Analyst Report BUY MAINTAIN BUY 2.700 SAME 2.700
BUY MAINTAIN BUY 2.900 SAME 2.900
BUY MAINTAIN BUY 1.100 SAME 1.100




Read also DBS Research's most recent report:
2022-11-08 Lendlease Global Commercial REIT - 313@Somerset Tenant Sales Bloom To ~125% Of Normalised Levels

Target prices by 2 other brokers at Lendlease REIT Target Prices.
Listing of broker reports at Lendlease REIT Analyst Report.

Relevant links:
Lendlease REIT Share Price History,
Lendlease REIT Announcements,
Lendlease REIT Dividends & Corp Actions,
Lendlease REIT News Articles





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