Frasers Centrepoint Ltd - CIMB Research 2017-04-17: Extending reach to European industrial property

Frasers Centrepoint Ltd - CIMB Research 2017-04-17: Extending reach to European industrial property FRASERS CENTREPOINT LIMITED TQ5.SI

Frasers Centrepoint Ltd - Extending reach to European industrial property

  • Acquiring 86.56% of Geneba Properties NV for €315.9m.
  • Expanding its network and reach through a quality portfolio and platform.
  • Deal accretive to earnings, boosting bottomline by c.12% on an annualised basis.
  • Post transaction gearing at a healthy 67.5%.
  • Maintain Add with an unchanged target price of S$2.02.

Venturing into European industrial market 

  • FCL announced it has entered into a Block Trade Agreement (BTA) with Catalyst RE Cooperatief UA to purchase 86.56% of Geneba Properties NV (Geneba) for €315.9m.
  • Subject to receiving relevant approvals for the transaction, FCL will also make an allcash offer for the remaining shares outstanding. This is FCL’s first foray into the European logistics and industrial property market.

A quality portfolio and platform….

  • Geneba is a European commercial real estate investment company that manages a predominantly logistics and industrial property portfolio in Germany and the Netherlands.
  • As at Feb 2017, the portfolio has 690,000sqm of rental area with an average occupancy of 98% and a weighted lease expiry of 9.5 years. It has a strong tenancy profile with MNC names including ABB, Hellman Worldwide Logistics, DSV Solutions and Volkswagen.

….to extend its network and reach 

  • We see this acquisition as strategic as it would give FCL exposure to the deep and buoyant European industrial and logistics property market through a quality portfolio as well as an established platform to further grow its logistics property business. 
  • The purchase is in line with FCL’s aim to extend its logistics and industrial platform to create a network effect and enable it to grow together with its customers. 
  • In addition, it would also provide a platform with scale in a market that has favourable prospects.

Deal accretive to earnings 

  • While the transaction translates to 1.35x its Dec 2016 book value, we understand there is potential upside to book value given the buoyant logistics and industrial markets of Germany and the Netherlands. 
  • Portfolio properties were valued at average cap rates of 6.1% in Germany and 7% in the Netherlands. 
  • In terms of impact, this purchase could boost FCL’s earnings by S$59m (2.1 Scts) on an annualised basis. We expect gearing to rise 3% pts to 67.5% post acquisition.

Maintain Add 

  • We tweak our FY17-19F EPS by -4.6% to 5.6%, to factor in this purchase. 
  • Not only is this acquisition immediately earnings accretive upon completion, it will also enable FCL to expand into the deep and growing European industrial property market. 
  • FCL currently trades at 39% discount to RNAV of S$2.89 and offers c.4.9% dividend yield. Our TP is pegged to 20% discount to RNAV. 
  • Key risk to our Add call includes a slowdown in its core markets of Singapore and Australia, delaying residential sales and earnings.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | 2017-04-17
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.020 Same 2.020