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

FRASERS CENTREPOINT TRUST (SGX:J69U) | SGinvestors.io 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.
  • We expect FY19e/FY20e DPU to rise 0.4% and 2.2%, respectively.
  • Maintain NEUTRAL with higher Target Price of S$2.36 (previously S$2.31).



What is the news?

  • 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).


Impact on Frasers Centrepoint Trust

  • 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.


What do we think?

  • 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.


Outlook

  • 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.


Maintain NEUTRAL with higher Target Price of S$2.36 (previously S$2.31).

  • 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



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