Frasers Centrepoint Trust - Phillip Securities 2019-05-24: A Watertight Deal

FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - A Watertight Deal

FRASERS CENTREPOINT TRUST (SGX:J69U) proposed an acquisition of a 33.33% interest in Waterway Point from its Sponsor.
Equity fund raising of 184mn new units totaling S$437.4mn (S$369.6mn private placement and S$67.8mn pro-rata non-renounceable preferential offering) at S$2.382 and S$2.350 per new unit, respectively.
Waterway Point has an NPI yield of 4.7% and is expected to contribute c.16.5% of the total return (on a pro-forma basis) of Frasers Centrepoint Trust’s enlarged portfolio, diversifying Frasers Centrepoint Trust’s earnings base.

Proposed acquisition of a 33.33% interest in Waterway Point (WWP) from its Sponsor, Frasers Property Limited (FPL) for a consideration of S$1.3bn (on a 100% basis) – an implied c.S$433.3mn for Frasers Centrepoint Trust’s equity-accounted stake (see figure 1 in attached PDF report for details on Waterway Point).
Equity fund raising (EFR) of c.S$437.4mn comprising:
- Private placement proceeds of S$369.6mn which included an fully-taken over-allotment option (2.3x subscribed on 17 May 2019, at the top end of a price range of S$2.30-2.382 per new unit).
- A pro-rata and non-renounceable preferential offering of c.S$67.8mn for S$2.30-2.383 per new unit.
Gross proceeds from EFR intended to partially finance the proposed Waterway Point Acquisition (c.S$245.3mn) as well as to partially pare down bridging loans related to the earlier announced acquisition of stake in PGIM Real Estate AsiaRetail Fund Limited (PGIM ARF) (c.S$176.4mn).

Expected pro-forma DPU accretion of +0.29% from the proposed Waterway Point acquisition, and +0.65% if also including the PGIM ARF stake.
Pro-forma gearing following the proposed Waterway Point acquisition would be at 30.7% (FY2018: 28.6%), and at 33.2% if also including the PGIM ARF stake.
Waterway Point is expected to contribute c.16.5% of the total return (on a pro-forma basis) of Frasers Centrepoint Trust’s enlarged portfolio.

A highly anticipated and positive move, with Frasers Centrepoint Trust’s last sizeable acquisition only back in 2014 (Changi City Point).
We believe there is upside for rental escalation and reversion rates, supported by the recent resilience of fringe retail rents, as well as favourable attributes specific to Waterway Point – it is part of an integrated residential and retail development with an adjoining visitors’ centre and is next to the Punggol MRT/LRT stations. According to Cistri, the population in Waterway Point’s trade area is expected to increase by a CAGR of +3.8% to 201k by 2023. This comes even after the stabilisation phase of the area, which saw tenant sales and footfall at Waterway Point surge 10% and 4%, respectively, from 2017-2018.

Waterway Point’s NPI yield of 4.7% is in line with the Frasers Centrepoint Trust’s portfolio average, and is poised to match that of its bigger portfolio malls – Causeway Point (CWP) and Northpoint North Wing (NPNW) – which are currently north of 5%, given that it is still in a stabilisation phase (Waterway Point only commenced operations in 2016). Further, this acquisition helps diversify Frasers Centrepoint Trust’s earnings base as both CWP and NPNW account for two-thirds of FY18 NPI.

We adjust our FY19e and FY20e DPU estimates by +0.4% and +2.2%, respectively (assuming completion by 4QFY19), to account for the proposed Waterway Point acquisition. Our target price had been adjusted accordingly to S$2.36 (previously S$2.31).
We maintain our NEUTRAL call on Frasers Centrepoint Trust.

Tara WONG Phillip Securities Research | https://www.stocksbnb.com/ 2019-05-24

SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 2.36 UP 2.310