Frasers Centrepoint Trust - CGS-CIMB Research 2020-09-04: Final Step In Acquiring AsiaRetail Fund Limited (ARF)


Frasers Centrepoint Trust - Final Step In Acquiring AsiaRetail Fund Limited (ARF)

Proposed acquisition of AsiaRetail Fund Limited (ARF) and disposal of Bedok Point

  • Frasers Centrepoint Trust (SGX:J69U) proposed to acquire the remaining 63.1% of AsiaRetail Fund Limited (ARF) which owns five suburban malls and one office property, for approximately S$1,057.4m which is also ARF’s NAV, from its sponsor, Frasers Property Limited. The transaction is a follow-through on its strategy to increase Frasers Centrepoint Trust’s stake in ARF in order to have full control of the assets and tax transparency. It also proposed to divest Bedok Point for a sale price of S$108m.
  • The acquisition and disposal price indicate 5% and 2.5% NPI yield.
  • The acquisition will be funded via the issuance of up to 628m new units to raise S$1394.2m, the proceeds of which will also be used to pare down debt.

Solidifying its position as a retail REIT in Singapore

  • Upon completion, Frasers Centrepoint Trust’s retail properties in its portfolio will increase from 7 to 11 and its NLA will expand by 64% to 2.3m sq ft, placing Frasers Centrepoint Trust among the largest suburban mall owners in Singapore. Frasers Centrepoint Trust’s portfolio’s size will also double to S$6.65bn.
  • The enlarged portfolio will also have a diversified asset base with no single asset representing more than 22% of the value of Frasers Centrepoint Trust as compared to 30% pre-merger. Frasers Centrepoint Trust will also become the 8th largest (from 12th) S-REIT by market cap and free float which would further increase its index weightage in the FTSE EPRA/NAREIT Index.

AsiaRetail Fund Limited (ARF)’s malls tenant sales have returned to pre-COVID-19 levels

  • We view the proposed acquisition and disposal positively. We like ARF’s malls as they are strategically located within five minutes walking distance of an MRT station. In addition, four of the five assets are situated in low retail space per capita regions while three of the five malls are dominant malls and hence face little competition in their respective areas.
  • While shopper traffic of Frasers Centrepoint Trust and ARF are still ~60% below pre-COVID-19 level, tenant sales have recovered back to pre-COVID-19 levels. We expect the acquisition to further strengthen Frasers Centrepoint Trust’s resilience.
  • Meanwhile, Bedok Point has been a weaker asset of Frasers Centrepoint Trust’s with relatively lower occupancy and weaker rental reversions. In 1HFY20, Bedok Point only accounted for 3.4% of Frasers Centrepoint Trust’s total revenue.

Maintain ADD on Frasers Centrepoint Trust with a higher Target Price of S$2.83

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-09-04
SGX Stock Analyst Report ADD MAINTAIN ADD 2.83 UP 2.780