Real estate investment trusts (REITs) are known to employ a variety of methods to fund mergers and acquisitions (M&A), and these include options involving debt and equity. The most straightforward method used by REITs would be to take on more debt, but this will increase its leverage ratio (i.e. total debt divided by total asset) and may offer it less room to take on debt in future. The maximum leverage that a REIT can take up is 45%, so many REITs tap on capital markets as an alternative source of funding.
Secondary share placements are a common source of fundraising and involve the issuance of new shares to a new group of investors who take up a stake in the REIT. Such placements will increase the issued share capital base of the REIT and be dilutive to distribution per unit (DPU), but the REIT manager will attempt to offset the impact with an M&A that is yield-accretive.
Placements could, therefore, be a great way to increase the liquidity of the REIT’s units and also bring new investors on board. Here are three REITs that conducted share placements recently in order to carry out acquisitions.
1. Dasin Retail Trust
Dasin Retail Trust (SGX: CEDU) is a China property REIT that invests in income-producing real estate used primarily for retail purposes. Its portfolio consists of four retail malls located in Zhongshan City in China.
Earlier this month, Dasin carried out a secondary placement of shares to raise a total of S$68.8 million in gross proceeds at an issue price of S$0.836 per unit. Approximately S$61.3 million of these proceeds was used to fund the proposed acquisition of Doumen Metro Mall announced on 30 June 2019. The remaining S$7.5 million is for the payment of expenses and commissions related to the purchase.
2. CapitaLand Retail China Trust
CapitaLand Retail China Trust (SGX: AU8U), or CRCT, is the largest China shopping mall REIT in Singapore, with a portfolio of 11 shopping malls. CRCT’s portfolio has a gross rentable area of 700,000 square metres and is valued at around S$3.1 billion as of 30 June 2019.
In August 2019, CRCT issued a total of 105,043,000 new units in a private placement at an issue price of S$1.469 per unit to raise gross proceeds of around S$154.3 million. Coupled with a preferential offering of 86,871,006 shares at a preferential offer price of S$1.44 per unit, the total gross proceeds raised was around S$279.4 million. Of this, around S$274.4 million will be used for the acquisition of three companies from sponsor CapitaLand Ltd (SGX: C31) holding three malls in China. This acquisition was announced back in June 2019 and will expand CRCT’s portfolio size by 18.6% for long-term growth.
3. Frasers Logistics & Industrial Trust
Frasers Logistics & Industrial Trust (SGX: BUOU), or FLT, is a REIT that invests in industrial and logistics properties. Its portfolio consists of 81 properties located within major logistics and industrial markets in Australia, Germany and the Netherlands.
In August 2019, FLT conducted a private placement of 220 million new units at an issue price of S$1.173 per unit to raise gross proceeds of approximately S$258.1 million. These proceeds will be used for partial payment for the acquisition of 12 freehold logistics properties located in Germany and Australia for around S$612.5 million. The remainder of the purchase price will be settled by debt financing.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of CapitaLand Retail China Trust and CapitaLand Limited. Motley Fool Singapore contributor Royston Yang owns shares in Frasers Logistics & Industrial Trust.
Motley Fool Singapore 2019