Frasers Centrepoint Trust - DBS Research 2016-11-07: A Baby Step Closer to the Grand Integration

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FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - A Baby Step Closer to the Grand Integration

• FCT buys ground floor of Yishun 10 for c.S$39m, to be funded by debt.
• Acquisition cap rate is estimated to be c.4.0%.
• A baby step for the future strategic integration of the retail scene in Yishun.
• No material impact on TP or earnings.

What’s New 

• FCT has today entered into a sale and purchase agreement with Bon-Food Pte Ltd and Goldvein Trading Pte Ltd to acquire the ground floor retail units at Yishun 10 Cinema Complex.

Our View 

Acquisition cap rate is estimated to be 4%. 

• According to the Straits Times’s article in May 2016 (link) and our understanding from the Management, we estimate the acquisition cap rate is c.4.0%, which translates to a longterm stablised NPI of c.S$1.6m p.a based on the independent valuation of S$40.0m.

Relative high cost psf NLA due to strata units. 

• We note the cost at psf NLA is on the high end, this can be justified by 
  1. ground floor location which is usually higher than the average of a mall, and 
  2. small strata-titled units which generally command a low discount rate.

No material impact. 

• We expect the acquisition to be fully funded by debt, and do not see any material effect on NAV, DPU, and gearing ratio. 
• Over the short term, additional NPI contribution will ease the need for the Management to pay management fees in units, hence mitigating the diluting impact of the unit base. As such, we have decreased our assumption of fees payable in units in FY17 from 85% to 77.5%.

But a strategic move in baby steps. 

• We believe this acquisition re-emphasises the long-term vision for FCT to integrate the retail scene in the Yishun area, particularly given the ongoing AEI at Northpoint Shopping Centre and the construction of Northpoint City. 
• To integrate Yishun 10 with the Northpoint project, FCT will need to purchase the remaining three storeys of the complex that are currently owned by Golden Village. At this point in time, Golden Village has yet to indicate its interest to sell.

Maintain BUY, TP unchanged at S$2.29. 

• FY17F DPU forecast stays at 11.77 Scts, forward yield at 5.1%.

Derek Tan DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-11-07

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.290 Same 2.290