Frasers Centrepoint Trust - Maybank Kim Eng 2019-05-16: Deepening Suburban Reach


Frasers Centrepoint Trust - Deepening Suburban Reach

Buying a-third of Waterway Point; maintain BUY

  • We expect FRASERS CENTREPOINT TRUST (SGX:J69U)’s new 33.3% interest in Waterway Point to strengthen its DPU growth profile; the purchase should diversify its AUM exposure to another strong suburban mall asset and potentially add 12.0% to its distributable income.
  • The net SGD440.6m transaction funded through new equity suggests 1-3% DPU accretion for FY19-21E and debt capacity for further acquisition opportunities.
  • We keep our forecasts and DDM-based Target Price of SGD2.60 (COE: 7.2%, LTG: 2.0%) pending deal closure.
  • Frasers Centrepoint Trust’s 5.7% FY20 DPU yields remain compelling against peers’ 5.2% average, especially with its stronger growth profile. It stays as our preferred retail REIT with visible growth drivers and potential further deals.
  • BUY for 12% total return.

Strong asset, 14.8% NPI boost

  • Frasers Centrepoint Trust will acquire a 33.3% interest in Sapphire Star Trust – which owns Waterway Point in Singapore’s Punggol Central - from its sponsor for SGD433.3m or SGD3,502 psf in capital value.
  • The property’s FY18 NPI contribution of SGD61.1m on a total NLA of 371,200 sf implies a 4.7% yield. This is in line with other large suburban assets in Frasers Centrepoint Trust’s portfolio.
  • We expect the mall’s committed 98.1% occupancy to be backed by defensive attributes - its dominant location in a suburban residential hub directly connected to an MRT, 99-year leasehold commencing 2011 and longer-term population growth of 3.8% pa forecast for the township over 2018-23, ahead of the +1.0% national average.
  • We see rents rising in the medium term against tight new supply in the area and improving tenant sales (which jumped 10.0% y-o-y in FY18) and shopper traffic (up 3.9% y-o-y to 29.1m).

Accretive deal; maintain forecasts for now

  • The deal is expected to be fully financed by proceeds of at least SGD421.7m raised from the issue of 184.0m new units, which should add 19.8% to Frasers Centrepoint Trust's share base.
  • We estimate DPUs could rise 1-3% through FY19- 21E. Management expects gearing to climb from 28.8% as at end-Mar 2019 to 30.7% and 33.2%, including funding for its PGIM investment. This suggests SGD300-400m debt headroom at 40-45% limits for further deals.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-05-16
SGX Stock Analyst Report BUY MAINTAIN BUY 2.600 SAME 2.600