Frasers Centrepoint Trust - DBS Research 2020-07-02: Spotlight On PGIM Acquisition

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FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - Spotlight On PGIM Acquisition

• Frasers Centrepoint Trust acquires an additional 12.07% stake within PGIM, with remaining c.63% stake solely held by sponsor.
• Full acquisition of PGIM ARF within reach at an additional c.S$1bn.
• Downside risk from riskier assets and trade sectors contained at c.17% of portfolio GRI.
• New target price implies a 1.45x P/Bk.

Additional 12.07% stake in PGIM acquired by FCT

• Frasers Centrepoint Trust (SGX:J69U) announced the acquisition of an additional 12.07% stake within PGIM ARF yesterday for S$197.2m. See Frasers Centrepoint Trust Announcements.
• Frasers Centrepoint Trust’s interest within the fund will rise to 36.89% when the deal is completed by the end of this month.
• Transaction will be fully funded by debt and likely at a similar rate to Frasers Centrepoint Trust’s current borrowing cost of 2.44%, in our opinion.
• The transaction is priced close to book, with valuations close to Frasers Centrepoint Trust’s prior acquisition within PGIM.
• Accretion will be marginal for this deal at 0.13% on a pro forma basis.
• The move is a positive surprise since the unwinding of PGIM’s acquisition has been sitting at the forefront of investors’ expectations. Additional contributions from this acquisition will help to cushion DPU impact this year from the overhanging COVID-19 risks.

PGIM acquisition to be revisited with laser-like focus in 2H20

• We reiterate what we had previously written in our report ‘Frasers Centrepoint Trust - DBS Research 2020-03-09: A Perfect Match; Unscathed From COVID-19 Outbreak’ issued in March and we remain excited that this will be the final move towards a checkmate on PGIM.
• Remaining c.63% stake held by sponsor will likely be next on the table when risks associated with the current COVID-19 pandemic subside and the capital-raising environment becomes more favourable.
• The PGIM acquisition will give Frasers Centrepoint Trust the ability to almost double AUM from S$3.6bn to S$6.6bn in the coming years, with a strategic portfolio focus concentrated within the northern and northeastern parts of Singapore.
• These areas represent both the most underserved areas on the island, at 0.5 sqm of retail space/capita (compared to 1.5 sqm of retail space/capita islandwide) and the regions with the largest population growth extrapolated to 2030F (c.55% and 43% for the northern and northeastern regions respectively).
• Non-core assets such as Anchorpoint, Bedok Point and Yew Tee Point as well as Frasers Centrepoint Trust’s 31.15% stake within the Hektar Portfolio could bring proceeds of c.S$370m and c.S$104m respectively based on the latest valuation review.
• Divestment proceeds could be rechannelled for Frasers Centrepoint Trust to restart the acquisition engine and unwind the remaining stake held by sponsor, Frasers Group, in its totality.
• With the full acquisition of the PGIM portfolio, Frasers Centrepoint Trust will stand as the last REIT in the sector with a pure play status in Singapore retail after the proposed merger of CapitaLand Mall Trust (SGX:C38U) and CapitaLand Commercial Trust (SGX:C61U) and will grow to become the second-largest retail landlord in Singapore with 8.5% market share.

Target price raised to S$2.95

• We anticipate Frasers Centrepoint Trust’s see-through gearing to increase to 37-38% from 34.7% reported in the latest quarter, maintained below a comfortable 40% gearing level.
• See Frasers Centrepoint Trust Share Price; Frasers Centrepoint Trust Target Price; Frasers Centrepoint Trust Analyst Reports; Frasers Centrepoint Trust Dividend History; Frasers Centrepoint Trust Announcements; Frasers Centrepoint Trust Latest News.
• Our target price assumes an implied FY20/FY21 dividend yield of 3.5%/4.3% and P/NAV of 1.45x for FY21, reflective of Frasers Centrepoint Trust’s trading metrics prior to the COVID-19 outbreak.
• Beta has been adjusted to 0.75, back to pre-COVID-19 levels.

Singapore Research DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-07-02

SGX Stock Analyst Report BUY MAINTAIN BUY 2.95 UP 2.650