- Myer Centre offers attractive proforma historical property yields of 6.6%. Could add 2.8% to DPU.
- Purchase price of AUD288m below replacement cost, with potential upside from asset enhancement.
- We are positive on the acquisition. Top BUY among retail SREITs. DDM TP still at SGD0.93. Catalysts from positive rental reversions.
SGREIT has proposed to acquire Myer Centre Adelaide for AUD288m or SGD302m in cash. Deal closure is expected before end-Jun 2015. Myer Centre is in Adelaide’s retail CBD core, and has the only retail pedestrian stretch in the city. Completed in 1991, it is the city’s largest shopping centre. It comprises a retail centre with 620k sf of retail space, three office buildings occupying 98k sf and four basements with 467 carpark lots. Retail occupancy is 95%, excluding two vacant floors. Office occupancy is 93%. NPI of SGD19.95m implies NPI yields of 6.6%. FY14 proforma DPU would have been 5.19 SGD cts instead of 5.05 cts. There is upside from rental increases as most leases have embedded annual rent increases: 5% or CPI for retail, 3.5% for offices. In addition, two floors of its retail centre with 114k sf NLA are vacant and can be activated in the future. The acquisition will be funded with internal capital and debt. Aggregate leverage will climb from 29% to 35%.
Positive; Catalysts intact
We are positive on the acquisition. Transacted yield of 6.6% is attractive vs SGREIT’s 5.9%. Myer Centre also has strong growth prospects from its un-activated space and high embedded rental escalations of 3.5-5% pa vs Singapore’s more typical 2%. SGREIT remains our top buy among retail SREITs as 52% of its NPI comes from Orchard Road malls where supply is tight.
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