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COMMERCIAL PROPERTY, RETAIL | Staff Reporter, Singapore
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How can CapitaLand Retail China Trust fund its $589.2m mall acquisition?

A private placement paired with preferential offering could boost its DPU, an analyst said.

A private placement, amongst other equity fundraising exercises, could boost the distribution per unit (DPU) of CapitaLand Retail China Trust (CRCT), which is seeking to fund the $589.2m (RMB2.96b) acquisition of three malls in Harbin and Changsha in China, according to OCBC Investment Research.

Also read: $589.2m China mall buys to spur short-term pain for CapitaLand Retail China Trust

“With regard to the proposed acquisition of three more malls in Harbin and Changsha, we note that the estimated amount that needs to be raised from the equity markets remains sizeable
relative to CRCT’s market capitalisation (~19% of market cap according to our 38% target gearing level),” OCBC Investment Research analyst Deborah Ong noted.

According to Bloomberg consensus, as at 13 June’s close, CRCT is trading at 12 million blended forward dividend yield of 6.9%, 0.5x standard deviations below its 5-year average.

Ong noted that rights issues are mostly employed for situations where the gross proceeds to be raised are significant relative to the REIT’s market capitalisation. “For the past ten S-REITs rights issues, the gross proceeds raised as a proportion of market capitalization (pre-announcement) ranged from 13% to 57%,” she added.

Other equity fundraising options are available to CRCT (besides a rights issue) that would likely be more favourable for DPU accretion, Ong said. “Whilst private placements tend to be small and usually raise gross proceeds of <10% market capitalisation, it is not necessarily so.”

She suggested that private placements may also be paired with (non-renounceable) preferential offerings with the new units issued at discounts of less than 10%. Previously, Frasers Centrepoint Trust (FCT), which conducted a $67.7m preferential offering and a $369.6m private placement, had gross proceeds eat up ~19% of its market cap pre-announcement.

Also read: Frasers Centrepoint Trust's preferential offering oversubscribed

“For CRCT, should they be able to conduct a private placement and preferential offering in the likes of FCT and others, that financing option would likely be more DPU accretive for current unitholders. We see the use of other forms of EFR as the main upside risk to our fair value,” Ong said. 

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