Frasers Property Limited - CGS-CIMB Research 2020-09-04: Win-Win Transaction

FRASERS PROPERTY LIMITED (SGX:TQ5)

Frasers Property Limited - Win-Win Transaction

Frasers Property is proposing to divest its 63.11% stake in ARF and buying Setapak Central and Bedok Point.
We see this as a strategically positive transaction to recycle capital and increase development land bank.
Reiterate ADD rating on Frasers Property with a Target Price of S$1.70.

Frasers Property Limited (SGX:TQ5) proposed to divest its 63.11% stake in AsiaRetail Fund (ARF) to Frasers Centrepoint Trust (SGX:J69U) for S$1,057.4m. ARF owns five malls and an office block in Singapore. At the same time, Frasers Property is proposing to buy Setapak Central, a mall located in Malaysia from ARF for S$39.6m, as well as Bedok Point from Frasers Centrepoint Trust for S$108m.
Setapak Central is located 6km north of the Kuala Lumpur City Centre and had a committed occupancy of 98.3% at end-Jun 2020. Its anchor tenants include Parkson, Econsave, H&M and MBO Cinemas.

We see the deal as strategically positive to Frasers Property as it would be able to unlock its investment in a valuable completed mall portfolio in Singapore, deleverage its balance sheet and gain a land parcel for future development. Frasers Property indicated that it expects to generate a net gain of S$42.9m from the sale of its stake in ARF.
In terms of balance sheet, post divestment of ARF, after taking into account Frasers Property’s share in Frasers Centrepoint Trust’s equity fund raising exercise, we estimate Frasers Property’s net debt-to-equity ratio could decline to c.1x vs. the proforma 1.07x as at end-Jun 2020 (post Northpoint City South Wing recapitalisation).

Meanwhile, the acquisition price of S$108m for Bedok Point was arrived at taking into account its Sep 2019 valuation of S$94m as well as the redevelopment potential of the property, assuming the change of use/rezoning of the land use to ‘residential with commercial on first storey’ will be approved and the land lease can be topped up to 99 years subject to payment of lease renewal premium. When completed, this purchase will likely further replenish Frasers Property’s medium-term residential landbank and launch pipeline, which presently includes Seaside Residences (92.6% sold as at Mar 20), Riviera (11.4% sold) and recent purchase of an executive condominium site in Fernvale Lane.
In the meantime, the 92% occupied Bedok Point would continue to generate some recurring rental income.

We leave our Frasers Property's FY20-22F earnings estimates unchanged pending completion of the transaction. Accordingly, our RNAV/Target Price remain unchanged at S$3.09/S$1.70, assuming an unchanged 45% discount to RNAV.
See Frasers Property Share Price; Frasers Property Target Price; Frasers Property Analyst Reports; Frasers Property Dividend History; Frasers Property Announcements; Frasers Property Latest News.
Active capital recycling is a potential upside catalyst for Frasers Property.
Downside risks: slower value unlocking activities due to the weaker macro outlook.
See also report: Frasers Centrepoint Trust - CGS-CIMB Research 2020-09-04: Final Step In Acquiring AsiaRetail Fund Limited (ARF).

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-09-04

SGX Stock Analyst Report ADD MAINTAIN ADD 1.700 SAME 1.700