• Acquisition of 1/3 stake in Waterway Point
• FY18 NPI yield of 4.7%
• Good fit to portfolio Proposed acquisition of 33.3% interest in

Waterway Point

Frasers Centrepoint Trust (FCT) has proposed to acquire a 33.3% stake in Waterway Point (WP) from its sponsor Frasers Property Limited. The purchase consideration is based on an agreed property value of S$1.3b (100% basis), which implies that the 33.3% stake will be acquired at S$433.3m. Both independent valuers adopted a cap rate of 4.5% in their valuation. The purchase consideration comes in at a premium of 6.6% to WP’s valuation as at 30 Sep 2018. Although the transaction price of S$3,502 psf on NLA does not come cheap, in our opinion, the implied FY18 NPI yield on cost of 4.7% is decent.

Strong Operating Metrics and Good Fit to Portfolio

WP is located at the heart of Punggol Central and thus has a strong residential catchment area, including a condominium with ~ 1k units right above it. Other investment merits of this deal include i) excellent connectivity to public transport nodes, ii) strong tenants such as FairPrice Finest, Shaw Theatres, Daiso and H&M, iii) robust operating metrics such as having a high committed occupancy of 98.1% (as at 31 Mar 2019), strong tenants’ sales growth of 10% to S$379.1m in 2018 and 3.9% increase in footfall to 29.1m in 2018, iv) healthy occupancy cost of 16-18%, and v) reduced concentration risks from FCT’s other key malls.

Equity Fund Raising Exercise to Partially Fund Acquisition

FCT has correspondingly launched an equity fund raising exercise to raise ~S$437.4m in gross proceeds. This comprises a private placement at an issue price of S$2.382 per new unit to raise gross proceeds of ~S$369.6m and a pro rata and non-renounceable preferential offering at an issue price of S$2.35 per new unit to raise gross proceeds of ~S$67.7m. The gross proceeds will go towards financing the proposed WP acquisition and paring down bridging loans taken up for the acquisition of a stake in PGIM Real Estate AsiaRetail Fund Limited (PGIM ARF).

FY18 pro forma DPU is expected to increase by 0.3% for the WP acquisition, and by 0.65% for both the WP and PGIM ARF transactions. We maintain our S$2.61 fair value for now.

Source: OCBC Research - 17 May 2019