SINGAPORE (May 21): Frasers Centrepoint Trust (FTC) is expected to add 19.8% to its share base from the issue of 184 million new units to raise funds amid its proposed acquisition of a 33.3% stake in Waterway Point.
But analysts say the move will strengthen FCT’s distribution per unit (DPU) growth profile.
“The purchase should diversify its AUM (asset under management) exposure to another strong suburban mall asset and potentially add 12.0% to its distributable income,” says Maybank Kim Eng Research analyst Chua Su Tye. “We estimate DPUs could rise 1-3% through FY19-21E.”
Maybank is keeping its “buy” call on FCT with an unchanged target price of $2.60.
FCT will acquire the one-third interest in Sapphire Star Trust, which owns the Waterway Point mall in Punggol, from its sponsor Fraser Property for $433 million.
The manager of FCT has proposed an equity fund raising to raise gross proceeds of no less than $421.7 million.
Some 135.7 million new units will be issued through a private placement at an issue price of $2.300-$2.382, while close to 48.3 million new units will be issued in a non-renounceable preferential offering at an issue price of $2.270-$2.352.
FCT will take over its pro-rated share of the bank loans related to Waterway Point and fund the rest via the equity fund raising.
Around $245 million of the amount raised via the equity fund raising will be used for the Waterway Point acquisition, while the rest will go towards the acquisition of a minority stake in PGIM Real Estate AsiaRetail Fund, which was previously announced.
See: Frasers Centrepoint Trust in equity fund raising for at least $422 mil
“Frasers Centrepoint Trust’s much-awaited acquisition of Waterway Point is a positive move that will diversify earnings, strengthen its tenant base and provide growth opportunities,” says RHB Group Research analyst Vijay Natarajan.
“Overall, we believe the mall is a good strategic fit for FCT’s suburban mall portfolio, and will help in income diversification (about 17% of enlarged portfolio),” he adds.
RHB is maintaining its “neutral” call on FCT, but raising its target price to $2.25, from $2.19 previously.
“Despite FCT’s stable earnings profile, valuations are unattractive, in our view. The stock is trading at 1.2x P/BV (near +2SD levels), with a yield of 5.2%,” Natarajan says.
However, the analyst is revising DPU forecasts upwards by 1-2% for FY19-21F, after factoring in the recent acquisition and adjusting for debt costs.
The way CGS-CIMB Research’s lead analyst Eing Kar Mei sees it, the recent acquisition is a “strategically located mall with strong residential catchment”.
“Its attractiveness is further enhanced by being in an area with one of the lowest retail mall floor space per capita in Singapore, according to [property advisory firm] Cistri,” says Eing. “Waterway Point diversifies FCT’s income and enlarges its tenant base.”
“We continue to like FCT for its exposure to stable suburban malls although weaker-than-expected rental reversions could be a key downside risk,” she adds.
CGS-CIMB is keeping its “add” call on FCT, and raising its target price marginally by 2 cents to $2.55.
“[FCT] stays as our preferred retail REIT with visible growth drivers and potential further deals,” says Maybank’s Chua.
“Management expects gearing to climb from 28.8% as at end-Mar 2019 to 30.7% and 33.2%, including funding for its PGIM investment. This suggests $300-400 million debt headroom at 40-45% limits for further deals,” he adds.
As at 2.35pm, units in FCT are trading flat at $2.40. According to CGS-CIMB valuations, this implies an estimated price-to-earnings (PE) ratio of 19.7 times and a dividend yield of 5.3% for FY19F.
