Buying A-third of Waterway Point; Maintain BUY

• We expect FRASERS CENTREPOINT TRUST (SGX:J69U)’s new 33.3% interest in Waterway Point to strengthen its DPU growth profile; the purchase should diversify its AUM exposure to another strong suburban mall asset and potentially add 12.0% to its distributable income.
• The net SGD440.6m transaction funded through new equity suggests 1-3% DPU accretion for FY19-21E and debt capacity for further acquisition opportunities.
• We keep our forecasts and DDM-based Target Price of SGD2.60 (COE: 7.2%, LTG: 2.0%) pending deal closure.
• Frasers Centrepoint Trust’s 5.7% FY20 DPU yields remain compelling against peers’ 5.2% average, especially with its stronger growth profile. It stays as our preferred retail REIT with visible growth drivers and potential further deals.
• BUY for 12% total return.

Strong Asset, 14.8% NPI Boost

• Frasers Centrepoint Trust will acquire a 33.3% interest in Sapphire Star Trust – which owns Waterway Point in Singapore’s Punggol Central - from its sponsor for SGD433.3m or SGD3,502 psf in capital value.
• The property’s FY18 NPI contribution of SGD61.1m on a total NLA of 371,200 sf implies a 4.7% yield. This is in line with other large suburban assets in Frasers Centrepoint Trust’s portfolio.
• We expect the mall’s committed 98.1% occupancy to be backed by defensive attributes - its dominant location in a suburban residential hub directly connected to an MRT, 99-year leasehold commencing 2011 and longer-term population growth of 3.8% pa forecast for the township over 2018-23, ahead of the +1.0% national average.
• We see rents rising in the medium term against tight new supply in the area and improving tenant sales (which jumped 10.0% y-o-y in FY18) and shopper traffic (up 3.9% y-o-y to 29.1m).

Accretive Deal; Maintain Forecasts for Now

• The deal is expected to be fully financed by proceeds of at least SGD421.7m raised from the issue of 184.0m new units, which should add 19.8% to Frasers Centrepoint Trust's share base.
• We estimate DPUs could rise 1-3% through FY19- 21E. Management expects gearing to climb from 28.8% as at end-Mar 2019 to 30.7% and 33.2%, including funding for its PGIM investment. This suggests SGD300-400m debt headroom at 40-45% limits for further deals.

Source: Maybank Kim Eng Research - 16 May 2019