Frasers Centrepoint Trust - Portfolio expansion move (DBSVickers)

BUY S$1.54 STI : 3,189.26

Price Target : 12-Month S$ 1.73

Reason for Report : Update on new acquisition

Potential Catalyst: Accretive asset purchases

DBSV vs Consensus: Slightly above on expectation of faster ramp up of Causeway Point occupancy after AEI works

• As expected, FCT is acquiring Bedok Point for S$127m

• Accretive deal, reviewing funding options

• Maintain Buy, $1.73 TP

Acquires Bedok Point. FCT announced that it is purchasing Bedok Point from sponsor, Frasers Centrepoint for S$127m or S$1,568psf of NLA. All-in-cost works out to S$129.2m or S$1,595psf. Bedok Point is a four-storey 80,985sf NLA suburban shopping mall located within the established high population density Bedok housing estate and is well served by public transport facilities such as the Bedok MRT station and bus interchange. It enjoys a high volume of captive shoppers and has seen approximately 5.2m footfalls in the first 6 months of opening. Current occupancy is at 97.4% and tenants comprise mainly F&B and entertainment shops.

Price within expectations, further room for upside. We view this deal as positive as it will expand FCT’s asset size by 8.4% to S$1.66b while keeping its pure suburban focus. The acquisition price is in line with recent FCT and CMT mall valuations of around S$1,600-2,200psf while NPI yield based on current occupancy and monthly gross rents of S$11psf/mth works out to be about 5.6% with room to improve to 5.7-5.8% when fully leased. In the medium term, we believe there are opportunities for growth in yields through (1) improving the existing property efficiency of 60% (2) upward adjustment in rental in the first rental renewal cycle given that current rents are slightly below the suburban rents of S$12-14psf/mth.

The manager is reviewing funding options including a combination of debt and equity sources. Current gearing is at 31.7% and full debt financing would lift the ratio to 36-37%. In our scenario analysis, we have assumed between 40-60% of the acquisition value to be equity funded. This would result in a 4-4.7% boost to FY12F DPU while DCF-backed target price would remain relatively unchanged. These have not been factored into our current forecast.

Maintain Buy. We retain our Buy call on FCT. The stock is trading at current pre-acquisition FY11-FY12 yields of 5.5-5.8%. This is an attractive 344-374bps over the 10-year bond yield. Current target price of S$1.73 offers total return of 18%.