SPH REIT - OCBC Investment 2019-11-11: Acquisition Of A 50.0% Interest In Westfield Marion Shopping Centre

SPH REIT (SGX:SK6U) | SGinvestors.io SPH REIT (SGX:SK6U)

SPH REIT - Acquisition Of A 50.0% Interest In Westfield Marion Shopping Centre

  • Strategic entry into Adelaide market.
  • JV partnership with Scentre Group.
  • Acquisition to be completed by end of 2019.

Largest and only super-regional shopping centre in South Australia

  • SPH REIT (SGX:SK6U) announced the acquisition of a 50.0% interest in Westfield Marion, South Australia’s largest shopping centre, from Lendlease Real Estate Investments Limited for a purchase consideration of A$670.0m, (~S$636.5m), representing a 1.4% discount to the appraised valuation of A$679.5m (~S$645.5m). This translates into an implied NPI yield of 5.6%. See SPH REIT AnnouncementsSPH REIT Latest News.
  • Located in Adelaide, Westfield Marion is the largest and only super-regional shopping centre in South Australia, with a gross lettable area (GLA) of ~1.5m square feet, across a three-storey retail mall with five storeys of office space and ~ 5,270 parking spaces. The freehold property is located beside Oaklands Train Station and is approximately 10km south-west of Adelaide’s CBD.
  • With its large and diversified tenant base across fresh food, dining and entertainment, the mall attracts 13.5m annual visitors, with strong occupancy of 99.3% by GLA and weighted average lease expiry (WALE) of 6.7 years by GLA or 4.2 years by income. Anchor tenants include three department stores: David Jones, Myer and Harris Scarfe; three supermarkets: Coles, Woolworths, Aldi; and a 26-screen cinema which is the largest cinema offering in the whole of South Australia.
  • Home to more than 75% of the South Australian population, Westfield Marion could benefit from the growing population (CAGR of 0.8%) and spending (CAGR of 3.6%) from 2018 to 2031.

Timing and details of funding to be announced

  • The acquisition is expected to be completed by end of 2019. Post-acquisition, SPH REIT will form a joint venture partnership with Scentre Group, which is Westfield Marion’s current owner and also the largest retail REIT in Australia.
  • The acquisition is to be financed through a combination of proceeds from the S$300m of perpetual securities issued on 30 August 2019, debt and/or equity fund raising, with a decision on the timing and share of funding yet to be announced. For purpose of completion certainty, the manager may also arrange a bridging loan facility that can be drawn upon to fully fund the acquisition if required.

DPU and NAV per unit accretive transaction

  • The transaction is expected to further expand SPH REIT’s footprint in Australia, as ~19% of portfolio by valuation will be derived from Australia after the transaction.
  • Post-acquisition, SPH REIT’s WALE will increase from 3.2 years to 5.1 years by NLA and no single tenant will contribute more than 3% of SPH REIT’s gross rental income.
  • Assuming the total acquisition cost of S$691.3m (~S$656,7m) will be funded by the net proceeds from the S$300m perpetual securities, and S$161.5 million raised from an illustrative issuance of 155.3m new Units at an illustrative issue price of S$1.040 per new Unit, with the remaining ~S$200m funded by debt, the manager expects DPU accretion of 1.6% for this deal and an NAV accretion of 0.4%. See SPH REIT Dividend History.
  • Pending final details on the funding structure, our fair value estimate remains at S$1.10. See SPH REIT Share PriceSPH REIT Target Price.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-11-11
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.100 SAME 1.100