Frasers Centrepoint Trust - CGS-CIMB Research 2019-05-16: Further Diversifying The Income Base


Frasers Centrepoint Trust - Further Diversifying The Income Base

  • FRASERS CENTREPOINT TRUST (SGX:J69U) is acquiring a one-third interest in Waterway Point for c.S$433m, which will be financed by a mix of debt and equity with approximately 45:55 ratio.
  • Equity fund raising of at most S$437m to cover both Waterway Point and PGIM acquisitions.
  • Maintain ADD with a higher Target Price of S$2.55 to account for the acquisition of a 33% stake in Waterway Point and the expected equity fund raising.

One-third of Waterway Point for S$433m at 4.7% yield

  • FRASERS CENTREPOINT TRUST (SGX:J69U) proposed to acquire a one-third interest in Waterway Point (WP) for S$433m from FRASERS PROPERTY LIMITED (SGX:TQ5).
  • Waterway Point is a suburban mall in Punggol with a net lettable area of 371,200 sq ft. It commenced operations in Apr 16 and had a committed occupancy of 98.1% as of 31 Mar 2019. The agreed property value of S$1.3bn on a 100% basis, implies an entry yield of 4.7%.
  • According to Frasers Centrepoint Trust, on a pro-forma basis Waterway Point would have contributed 16.5% of the total return of the enlarged Frasers Centrepoint Trust portfolio for FY18 post-acquisition.

Equity fund raising for Waterway Point and PGIM

  • Frasers Centrepoint Trust will take over its pro-rated share of the bank loans related to Waterway Point and fund the rest via an equity fund raising of no less than c.S$421.7m in the form of a private placement and a preferential offering. The private placement of c.135.7m new units will be at an issue price of S$2.300-S$2.382 and could raise up to c.S$369.6m if the upsize option is exercised. The preferential offering of up to c.48.3m new units will be at an issue price of S$2.270-S$2.352.
  • Around S$245m of the amount raised will be used for the Waterway Point acquisition while the rest for the acquisition of a minority stake in PGIM Real Estate AsiaRetail Fund, which was previously announced.

Strategically located mall with strong residential catchment

  • Waterway Point is directly connected to both the Punggol MRT & LRT lines and a temporary bus interchange. It is also in close proximity to the Tampines Expressway which provides accessibility to the eastern parts of Singapore. According to property advisory firm Cistri, the population in Waterway Point’s primary trade area of Punggol is expected to grow at a CAGR of 3.8% during 2018-2023.
  • Its attractiveness is further enhanced by being in an area with one of the lowest retail mall floor space per capita in Singapore, according to Cistri. Waterway Point diversifies Frasers Centrepoint Trust’s income and enlarges its tenant base.

  • We maintain our ADD call with a higher Target Price of S$2.55 after accounting for the acquisition of a one-third interest in WP from 4QFY19 onwards.
  • We assumed that rental growth and margins for Waterway Point are in the same ballpark as for Causeway Point and Northpoint. We continue to like Frasers Centrepoint Trust for its exposure to stable suburban malls although weaker-than-expected rental reversions could be a key downside risk.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-05-16
SGX Stock Analyst Report ADD MAINTAIN ADD 2.55 UP 2.530