Frasers Centrepoint Trust: Here comes Bedok Point (DMG)

(BUY, S$1.54, TP S$1.79)

Bedok Point (BP) acquisition. Frasers Centrepoint Trust (FCT) announced that it has entered

into a conditional sale and purchase agreement to acquire BP for a purchase consideration of

S$127m (S$1,568 psf). Based on average passing rent of S$11 psf pm, which was mentioned by

Frasers Centrepoint during the official opening of BP in Apr 2011, the implied cap rate of this

acquisition is ~5.75%, in-line with current market cap rates of retail malls. Currently, the

management still has not decided on optimal equity/debt mix to fund the acquisition. Assuming

an equity/debt funding of 40%/60%, and completion of acquisition in end Aug 2011, we adjusted

our FY11-12 DPU by -4.9-+2.6% respectively. Consequently, our TP is raised to S$1.79 based

on DDM (COE: 8.8%; TGR: 2.0%). Maintain BUY.

Within 5km of Bedok MRT. Situated right across the Bedok MRT station, Bedok Point is

strategically located at Bedok and has a population catchment size of 295k. The latest

acquisition will add 81k sqft of NLA to FCT’s portfolio (~10% of FCT’s Singapore portfolio NLA).

Over 40% of BP’s NLA is attributable to food and beverage business (F&B). Separately, all level

1 cafes and restaurants are opened past midnight daily. Given the lack of enclosed shopping

malls and hangout areas in Bedok at night, we believe BP will continue to draw healthy flow of

crowds living in the area. Since its soft opening in Dec 2010, BP has drawn over 900k

shoppers/mth.

Top pick within S-REIT with DPU growth in FY12 expected at 29%. As greater level of AEI

completion is achieved at Causeway Point (CWP), we expect FCT to benefit greatly from rising

occupancy and higher average passing rent at CWP. Coupled with the latest BP acquisition as

well as healthy rental reversion at FCT’s other malls, we believe FCT can achieve a DPU growth

rate of 29% to 9.9S¢ in FY12. At its current price, FCT is trading at a undemanding FY12 spread

of 4.0% vs its pre-crisis mean spread of 1.8%. Given the strong growth profile and relatively

cheap valuation, FCT remains our top pick within the S-REIT space.