Capitaland Investment

[Shiyi]

Can anyone enlighten me the meaning of "yield accretive" acquisition?
In the case of the latest acquisition of lyf Funan, the acquisition yield is 4.7%. But the dividend yield for unit holders is around 6.7%. How is it that it is yield accretive?

[owq]

Can anyone enlighten me the meaning of "yield accretive" acquisition?
In the case of the latest acquisition of lyf Funan, the acquisition yield is 4.7%. But the dividend yield for unit holders is around 6.7%. How is it that it is yield accretive?

You're looking at different things. From the announcement, the EBITDA yield for acquisition is 4.7% and for divestment it is 3.2%. The DPS increases by 1.5%. Dividend yield is a per-share measure which depends on unit price.

[weijian]

Can anyone enlighten me the meaning of "yield accretive" acquisition?
In the case of the latest acquisition of lyf Funan, the acquisition yield is 4.7%. But the dividend yield for unit holders is around 6.7%. How is it that it is yield accretive?

Hi Shiyi,

Acquisition yield does not necessarily have to be higher than the dividend yield for it to be accretive. We can think of dividend yield as the "cost of equity". In order to be accretive, the acquisition yield has to be > than the "cost of equity" when equity is required to fund the acquisition.

In this particular case, no new equity is raised. But of course, this still does not explain exactly why. I think the below statement in the announcement should make things clearer:

The entry yield is attractive at 150 basis points higher compared to the exit EBITDA yield4 of Citadines Mount Sophia Singapore of 3.2% for FY 2023. Following the Proposed Acquisition and taking into account the Citadines Mount Sophia Divestment, CLAS’ total distribution is expected to increase by S$3.5 million, which translates to a DPS accretion of 1.5% on a FY 2023 pro forma basis.

In essence, the comparison of "accretive-ness" is done by comparing lyf Funan (higher cap rates) with Citadines Mount Sophia's performance (low cap rates), since this is an asset recycling sort of move. We can also imagine that we swap 100k worth of SSB@2.5% with 6 months T-bills@3.5% - Our 1million portfolio, let's say have a 5% yield (thanks to REITs) before the swap, will now have yield>5% post-swap, isn't it?