Frasers Centrepoint Trust - Maybank Kim Eng 2020-09-04: Gaining Scale


Frasers Centrepoint Trust - Gaining Scale

Adding in a final piece, Upgrade to BUY

  • Frasers Centrepoint Trust (SGX:J69U) has added in the final piece to its Asia Retail Fund (ARF) strategy with its SGD1.06b acquisition of the remaining 63.1% interest from its sponsor and a divestment of an underperforming asset at 2.5% NPI yield. The deal has boosted its AUM and reinforced its market share in the more resilient suburban malls space.
  • We will review forecasts following its 28 Sep EGM and after deal closure.
  • The transactions, backed by up to SGD1.39b in new equity and tax savings, is DPU accretive at ~5%. For now, tenant sales recovery has gained traction and strengthened DPU visibility.
  • Our new DDM-based Target Price for Frasers Centrepoint Trust is SGD2.80 (COE: 6.0%, LTG: 2.0%). With 15% return, we raise from Hold to BUY.

Acquires remaining Asia Retail Fund interest from sponsor

  • Frasers Centrepoint Trust has announced it will
    1. acquire the remaining 63.1% interest in the Asia Retail Fund (ARF) from its sponsor for SGD1.057b at 5.0% NPI yield (for the five retail properties), and
    2. divest Bedok Point for SGD108.1m at 2.5% NPI yield.
  • The transactions will boost its portfolio from 7 to 11 properties, its NLA by 64% to 2.3m sf, and AUM by 68% to SGD6.65b. Its market share of suburban retail floor space jumps from 5.4% to 10.2%, just behind CapitaLand Mall Trust (SGX:C38U) at 10.6%.
  • Frasers Centrepoint Trust will become the second largest Singapore retail landlord with a 6.0% market share of overall retail floor space, versus CapitaLand Mall Trust at 11.8%.

Deal is equity-funded, DPU-accretive

  • Frasers Centrepoint Trust will fund the acquisition with new equity at up to 628.0m new units, or 56.1% of its total unit base from a private placement and/or preferential offering.
  • Assuming an SGD1.3b EFR, we expect the transactions to result in a 4.72% DPU accretion, excluding one-off rental rebates (of SGD36.5m) disbursed to tenants by Frasers Centrepoint Trust and Asia Retail Fund for Apr-Jun 2020. This will mainly be achieved through SGD4.7m in tax savings, with full ownership of Asia Retail Fund allowing for tax transparency. Its leverage should rise from 38.1% to 39.3%.

Tenant sales recovery lifts visibility

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-09-04
SGX Stock Analyst Report BUY UPGRADE HOLD 2.80 UP 2.450