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Friday, September 04, 2020 – 1:37 pm
To account for the Frasers Centrepoint Trust (FCT) proposed stake purchase in AsiaRetail Fund (ARF), as well as its potential sale of Bedok Point, CGS-CIMB has increased its counter price target to S $ 2.83, from S $ 2.78 previously.
The investigation team, which said Friday that it views both deals positively, also reiterated its call to “add” FCT.
FCT’s stapled securities were trading at S $ 2.59 as of 1:41 PM, an increase of S $ 0.05 or 2%.
The real estate investment trust (Reit) plans to purchase the remaining 63.1 percent stake in ARF for approximately S $ 1.06 billion from its sponsor, Frasers Property. The purchase price indicates a return on net property income (NPI) of 5 percent.
This deal will further raise FCT’s profile as a suburban retail Reit, CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee said.
Upon completion of the transactions, the net leasable area (NLA) of FCT’s portfolio will expand by 64 percent to 2.3 million square feet, placing FCT among the largest suburban shopping center owners in Singapore. The size of FCT’s portfolio will also double to approximately S $ 6.65 billion.
ARF owns five shopping centers in Singapore: Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1, as well as the Central Plaza office property.
CGS-CIMB likes ARF shopping centers, as they are “strategically located” within a five minute walk of an MRT station.
Furthermore, of the five assets, four are located in regions with low per capita retail space, while three are also dominant shopping centers and therefore face little competition in their respective areas, CGS-CIMB said.
On the other hand, FCT is looking to sell Bedok Point to Frasers Property for S $ 108 million. The sale price indicates an NPI return of 2.5 percent.
Ms. Eing and Ms. Lock wrote that Bedok Point has been one of Reit’s weakest assets, given its relatively low occupancy and weaker rent reversals.
In the first half of fiscal 2020, the mall accounted for just 3.4 percent of FCT’s total revenue, they added.
CGS-CIMB expects Reit to experience a faster recovery from the impact of the coronavirus outbreak compared to its peers, as the pandemic has increased the importance of having a resilient portfolio, further boosting FCT’s profile as the sole center. pure suburban shopping Reit In Singapore.
Meanwhile, Citi maintained its “neutral” rating on FCT on Friday.
The purchase of the ARF stake will allow Reit to fully own a “resilient” suburban retail portfolio, with a “decent” backlog of 4.7% in distribution per unit (DPU) during the nine months ending June 30. 2020, said Citi analyst Brandon Lee. .
However, he said that while the rebound in tenant sales to 97-99 percent from pre-Covid levels was “impressive,” it could reflect in part pent-up demand, with buyer traffic (60-70 percent). percent of pre-Covid levels) affected by safe distancing rules.
The 4.7 percent DPU accrual from the proposed acquisition is in line with Citi’s 5 percent estimate. However, there could be further backlog as a result of possible tax transparency at Century Square and the illustrative “conservative” issue price of S $ 2.22 per unit (vs. FCT’s last closing price of S $ 2.54 Thursday), Lee wrote. FCT intends to finance the acquisition by issuing up to 628 million new units through private placement and / or preferential offer at the illustrative issue price to raise up to S $ 1.39 billion.
ARF’s acquisition price is based on the latest property valuation of S $ 3.07 billion, which is discounted by 0.03 from the valuation on August 1, 2020, but with a premium of 5.4 % with respect to the valuation of September 30, 2019.
Citi said it was “surprised” by the higher valuation compared to last September, in light of the onset of the coronavirus pandemic, FCT’s CapitaLand Mall Trust’s first-half 2020 asset devaluation of 2.5 percent and the structural headwinds.
“With leverage now at 39.3 percent, any potential asset devaluation could push it beyond the 40 percent mark preferred by investors,” Lee added. The Reit has said that its leverage ratio would increase by 4.3 percentage points to 39.3% after the acquisition on a pro forma basis.
In addition, Citi wrote that the ARF portfolio has a short weighted average lease maturity per NLA of 1.5 years, therefore there could be downside risk of reversals for upcoming maturities given the uncertain macro climate.
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