Frasers Centrepoint Trust - CGS-CIMB Research 2020-09-28: Launched Equity Fund Raising

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FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - Launched Equity Fund Raising

• Launched equity fund raising exercise to fund acquisition of ARF malls.
• Tenant sales of Frasers Centrepoint Trust/ ARF malls have almost recovered to pre-Covid level.
• Reiterate ADD with unchanged Target Price of S$2.83. Frasers Centrepoint Trust intends to maintain its position as a pure suburban mall landlord in Singapore.

Launched private placement and preferential offering

• Frasers Centrepoint Trust (SGX:J69U) launched an equity fund raising comprising an offering of new units in Frasers Centrepoint Trust to raise gross proceeds of no less than S$1,327.3m by way of
  1. a private placement of between 236.1m to 244.7m new units at an issue price of S$2.35 to S$2.44 to raise gross proceeds of S$575m, subject to an upsize option to issue up to 42.6m additional units, and
  2. a non-renounceable preferential offering of 313.5m to 324.6m new units at an issue price of S$2.34 to S$2.42 to raise gross proceeds of no less than S$746m.
• The private placement's issue price represents 3.3-6.6% discount to VWAP of S$2.52 while the preferential offering represents a discount of 3.9-7% .

Equity fund raising to fund acquisition and pare down debts

• Assuming the fund raising exercise raises gross proceeds of S$1,327.3m, 79% or S$1,049.8m will be used to fund the acquisition of AsiaRetail Fund Limited (ARF). The remaining will be used to pare down its debts.
• To recap, on 3 Sep 2020, Frasers Centrepoint Trust announced it will acquire the remaining 63.1% of ARF which owns five suburban malls and one office property. This is a follow-through on its strategy to increase its stake in ARF in order to have full control of the latter's assets, and for tax transparency.
• After the acquisition of ARF, Frasers Centrepoint Trust will focus on optimising the performance of the enlarged portfolio through
  1. economies of scale,
  2. strengthening its retail platform,
  3. interest expense savings through refinancing of existing debts, and
  4. increasing its financial flexibility by unencumbering some of the portfolio properties.

Tenant sales have almost recovered to last year’s level

• Both Frasers Centrepoint Trust and ARF's malls are well on track for recovery. Frasers Centrepoint Trust and ARF’s tenant sales improved further from Jul, with Aug tenant sales only down 2.2% and 0.6% respectively vs. a year ago, driven by household products, supermarket, jewellery and watches, and sports.
• Although the recovery in shopper traffic was much slower than tenant sales, at about 60% of last year’s, it continued to improve in Aug on a m-o-m basis.
• Frasers Centrepoint Trust revalued its assets recently with portfolio value up a slight 0.3% vs. Sep 2019. Malls which saw a single digit decline were Anchor Point, Changi City Point and Changi City Point.

Reiterate ADD on Frasers Centrepoint Trust with an unchanged DDM-based Target Price of S$2.83

• We continue to like Frasers Centrepoint Trust’s exposure to the suburban mall space. It intends to maintain its position as a Singapore-centric, suburban retail focused REIT. Frasers Centrepoint Trust's enlarged portfolio will further underpin its income resilience.
• 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.
• Potential re-rating catalysts include higher synergies from acquisition.
• Downside risks include resurgence of COVID-19 cases.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-09-28

SGX Stock Analyst Report ADD MAINTAIN ADD 2.830 SAME 2.830