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

FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - Gaining Scale

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.

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%.

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%.

The Asia Retail Fund assets are complementary to Frasers Centrepoint Trust with their concentration in essential trade at 53.8% of gross rental income. They should strengthen Frasers Centrepoint Trust’s suburban retail mall footprint with a projected 40% increase in catchment population especially in the north, northeast and eastern regions with limited new supply.
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.
We see suburban malls as more resilient vs. downtown retail properties on occupancies and rents. Over 99% of Frasers Centrepoint Trust's tenants have reopened - while density control measures have hampered shopper traffic, tenant sales have returned to pre-COVID levels.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-09-04

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