Frasers Centrepoint Trust - OCBC Investment 2019-05-17: Watering Your Way To Our Hearts


Frasers Centrepoint Trust - Watering Your Way To Our Hearts

  • Acquisition of 1/3 stake in Waterway Point.
  • FY18 NPI yield of 4.7%.
  • Good fit to portfolio.

Proposed acquisition of 33.3% interest in Waterway Point

  • FRASERS CENTREPOINT TRUST (SGX:J69U) has proposed to acquire a 33.3% stake in Waterway Point (WP) from its sponsor FRASERS PROPERTY LIMITED (SGX:TQ5).
  • The purchase consideration is based on an agreed property value of S$1.3b (100% basis), which implies that the 33.3% stake will be acquired at S$433.3m. Both independent valuers adopted a cap rate of 4.5% in their valuation. The purchase consideration comes in at a premium of 6.6% to Waterway Point’s valuation as at 30 Sep 2018.
  • Although the transaction price of S$3,502 psf on NLA does not come cheap, in our opinion, the implied FY18 NPI yield on cost of 4.7% is decent.

Strong operating metrics and good fit to portfolio

  • Waterway Point is located at the heart of Punggol Central and thus has a strong residential catchment area, including a condominium with ~ 1k units right above it. Other investment merits of this deal include
    1. excellent connectivity to public transport nodes,
    2. strong tenants such as FairPrice Finest, Shaw Theatres, Daiso and H&M,
    3. robust operating metrics such as having a high committed occupancy of 98.1% (as at 31 Mar 2019), strong tenants’ sales growth of 10% to S$379.1m in 2018 and 3.9% increase in footfall to 29.1m in 2018,
    4. healthy occupancy cost of 16-18%, and
    5. reduced concentration risks from Frasers Centrepoint Trust’s other key malls.

Equity fund raising exercise to partially fund acquisition

  • Frasers Centrepoint Trust has correspondingly launched an equity fund raising exercise to raise ~S$437.4m in gross proceeds. This comprises a private placement at an issue price of S$2.382 per new unit to raise gross proceeds of ~S$369.6m and a pro rata and non-renounceable preferential offering at an issue price of S$2.35 per new unit to raise gross proceeds of ~S$67.7m.
  • The gross proceeds will go towards financing the proposed Waterway Point acquisition and paring down bridging loans taken up for the acquisition of a stake in PGIM Real Estate AsiaRetail Fund Limited (PGIM ARF).
  • FY18 pro forma DPU is expected to increase by 0.3% for the Waterway Point acquisition, and by 0.65% for both the Waterway Point and PGIM ARF transactions.
  • We maintain our S$2.61 fair value for now.

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2019-05-17
SGX Stock Analyst Report BUY MAINTAIN BUY 2.610 SAME 2.610