100% stake represents yield accretion of 3.4% on annualised basis
Win-win deal: The purchase of the 100 per cent stake in Renhe Spring Department Store is seen as benefiting both MMP Reit and the vendor Renhe Spring Group INSTEAD of acquiring a 50 per cent stake, Macquarie MEAG Prime Real Estate Investment Trust (MMP Reit) is now taking full control of Renhe Spring Department Store in Chengdu, China, for 350 million yuan (S$70.3 million).
MMP Reit had in April this year announced that it would acquire a half stake in the 101,000 sq ft department store owned by Renhe Spring Group for 150 million yuan. The property, valued at 340 million yuan as at Dec 31, 2006, was re-valued at 350 million yuan as at July 31 this year.
On the increased stake, Franklin Heng, chief executive officer of the Reit’s manager, Macquarie Pacific Star, said: ‘This is a win-win arrangement…Not only will the yield accretion of this transaction for MMP Reit now be higher, Renhe Spring Group will also have more financial resources for its expansion and development projects in China, over which MMP Reit will continue to enjoy a first right of refusal.’
Renhe Spring Group’s pipeline of opportunities in China includes two other prime retail properties in Chengdu with combined gross floor area of more than one million sq ft.
The 100 per cent stake in the department store represents a yield accretion of 3.4 per cent on an annualised basis to MMP Reit’s distribution per unit, assuming full debt financing.
Between 2005 and 2006, Renhe Spring Department Store registered about 23 per cent of year-on-year retail sales growth and, for 2006, its sales were 263 million yuan.
The 350 million yuan price tag comprises 310 million yuan in cash and the assumption of an interest-free debt of 40 million yuan owed to Renhe Spring Group and repayable over seven years. Renhe Spring Group will also continue to operate the department store for a fee of 0.8 per cent of the gross turnover.
Renhe Spring Group guarantees annual net distributable profits of 26.4 million yuan, which is secured for two years by the sum of 20 million yuan to be deducted from the consideration and held in escrow.
With the completion of MMP Reit’s acquisitions in Japan in May and assuming the acquisition in China is fully funded by debt, MMP Reit’s gearing will be 31.8 per cent.
MMP Reit comprises eight properties including a 74.23 per cent stake in Wisma Atria, a 27.23 per cent stake in Ngee Ann City, and six properties in Tokyo.
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