• Initial NPI yield at 5.43%
• Funded partially by placement
• Gearing to increase slightly to 30.3%

New addition to portfolio

Frasers  Centrepoint  Trust  (FCT)  announced that  it  has  completed  the  acquisition  of Changi  City  Point  (CCP)  from  its  sponsor’s joint  venture  Ascendas  Frasers  Pte  Ltd  on Mon. Recall that FCT first proposed to acquire the retail mall for a purchase consideration of S$305.0m  (or  S$1,472  psf  NLA)  on  8  Apr. According to the circular  for unitholders, CCP is  expected  to  generate  an  NPI  yield  of 5.43%  and  to  contribute  positively  to  DPU, assuming that the transaction is funded via a combination of debt and equity.

Strong interest for private placement

FCT  has  since  launched  a  private  placement of  88m  new  units  at  an  issue  price  of between  S$1.79  and  S$1.835  per  unit,  upon getting  unitholders’  approval  for  the  relatedparty  transaction.  We  note  that  the  issue price  was  later  fixed  at  the  top  range  of S$1.835,  backed  by  strong  demand  from new  and  existing  Asian  and  European institutional  investors.  This  represents  a slight 3.6% discount to the VWAP for the full market  day  prior  to  the  placement announcement.  The  total  net  proceeds  of S$158.7m  raised  from  the  placement exercise  was  used  to  part  finance  the acquisition,  while  the  remaining  balance  of the purchase price was funded by borrowings and  internal  resources.  Based  on  our projections,  the  CCP  deal  is  expected  to  add an  annualised  0.12  S  cents  to  FCT’s  DPU. FCT’s  gearing  ratio,  on  the  other  hand,  is likely to increase from 27.7% as at 31 Mar to 30.3%.

Maintain BUY

In  connection  with  the  placement,  FCT  has also  declared  an  advance  distribution  of 2.288 S cents per unit for the period of 1 Apr to  9  Jun  2014,  payable  on/around  17  Jul. This  translates  to  a  respectable  yield  of 6.4%.  We  now  incorporate  the  private placement  and  acquisition  into  our  forecasts. Consequently,  our  fair  value  is  raised  from S$2.02  to  S$2.08.  Given  that  upside potential remains attractive, we maintain our BUY rating on FCT.

Source: OCBC Research - 18 Jun 2014