Frasers Centrepoint Trust (FCT) may be back in the running among the Singapore REITs (S-REITs) bidding for the Mercatus portfolio now that the portfolio may exclude AMK Hub and, or Nex, say DBS Group Research analysts Rachel Tan, Geraldine Wong, Percy Leung, Derek Tan and Jeff Yau.
The portfolio could be reduced to $3.3 billion if AMK Hub is excluded; it could be further reduced to $2.3 billion if both AMK Hub and Nex are excluded.
“We believe the portfolio excluding AMK Hub will still be attractive. However, if Nex is also excluded from the equation, the portfolio may still be attractive to some bidders but less efficient to some potential buyers, in our view,” the team says.
In their previous report in August, the analysts previously noted that while the portfolio’s suburban exposure was seen as the best fit for FCT’s portfolio, the size of the deal may be a “stumbling block” with its sponsor.
Now that the Mercatus portfolio could be halved in size, the analysts feel that FCT could emerge as the “dark horse” among the bidders.
“Firstly, the asset size would be more agreeable financially for FCT with the help of its sponsor,” the team writes.
“Secondly, FCT had earlier been interested to acquire Jurong Point but was outbid by Mercatus. Thirdly, its sponsor recently raised $500 million of green notes and with the Frasers Hospitality Trust (FHT) privatization falling through, we believe the sponsor might now have the firepower to consider the Mercatus portfolio,” it adds.
To be sure, the initial portfolio was large for FCT to begin with.
In their report, the analysts note that FCT had previously competed for Jurong Point when it was last put up for sale in 2017. However, FCT was outbid by Mercatus for an acquisition price of $2.2 billion ($3,343 per sq ft; 4.2% yield).
As at FY2021, Jurong Point is valued at $2.1 billion ($2,927 per sq ft; 4.2% yield).
“If the portfolio has only Jurong Point and Thomson Plaza remaining, we believe it will still be attractive to FCT if the price is ‘right’ for FCT,” says the team.
On CapitaLand Integrated Commercial Trust (CICT), one of the portfolio’s contenders, the DBS team sees the reduced portfolio as being “still attractive” to the REIT.
“We believe that both permutations would be attractive to CICT given that CICT has a strong existing retail platform in Singapore,” writes the team.
“The addition of two or more assets to the portfolio builds scale and possibly synergies or efficiencies to further raise the yields on the assets. Nevertheless, a smaller portfolio will likely be more palatable for CICT as it will put less stress on its balance sheet,” it adds.
Another contender, Hong Kong-listed Link REIT, may prefer a larger portfolio instead, with the exclusion of both AMK Hub and Nex being “less attractive” for Asia’s largest REIT.
“With only two assets in Singapore, we believe Link REIT may be disadvantaged by its smaller scale as it does not have an existing retail platform in Singapore,” the team says.
As at 4.33pm, units in FCT and CICT are trading at $2.29 and $2.07 respectively, while units in Link REIT are trading at HK$62.95 ($11.29).