SINGAPORE (Sept 12): DBS is maintaining its “buy” call on Frasers Centrepoint Limited with a target price of $2.35 after announcing it is acquiring a portfolio of business park assets in Europe and the UK for GBP 686 million ($1.2 billion).
See: Frasers Centrepoint Limited acquiring 4 UK business parks for $1.2 bil
After the completion of the deal, FCL will hold about $4.2 billion in assets in the UK and Europe.
This is 16% of total assets of $26.8 billion, a 4% increase from 12%.
In a Tuesday report, lead analyst Rachel Tan says based on the contracted rent of GBP 46.5 million, the acquisition will offer an initial gross yield of 6.7% which is “decent” and will be accretive to the portfolio.
Estimated pro-forma impact on FCL’s FY16 PATMI is 6% earnings accretive after the business park acquisition and 7% after the acquisition of all five properties.
The acquisition also introduces a new set of tenants to FCL, given that they are mostly in the telecom, ICT, manufacturing, and engineering sub sectors.
Meanwhile, the properties’ long WALE of 5.9 years offers strong income visibility and defensive cash flows to the group. Among the top 10 tenants, average WALE is longer at between 4.4 years and 18.1 years.
There is an additional 1.4 million sf -- representing another 29% of additional net lettable area -- across Chineham Park, Winnersh Triangle and Hillington Park, that could be tapped to drive medium-term inorganic growth.
These represents potential redevelopment upside to drive NAVs, adds Tan.
As at 3.18pm, shares in FCL are trading 1 cent higher at $2.12 or 11.8 times 2017 forward earnings.
