• Frasers Centrepoint Trust is increasing its stake in ARF from ~25% to 37%. This, together with Frasers Property’s stake, raised the group’s stake in ARF to ~100%.
• We believe Frasers Centrepoint Trust is one step closer to acquiring the suburban malls under ARF which fits well into Frasers Centrepoint Trust’s positioning as a pure suburban mall landlord.
• Reiterate ADD. We believe Frasers Centrepoint Trust will see the fastest recovery from Covid-19 due to its focus on suburban malls which rely less on tourists.

Acquiring Another 12% in PGIM Real Estate AsiaRetail Fund Limited

• Frasers Centrepoint Trust (SGX:J69U) announced that it has exercised its rights to pre-emption under the Bye-laws of PGIM Real Estate AsiaRetail Fund Limited (ARF) to acquire an aggregate 12.07% of the capital in ARF for a purchase consideration of ~S$197.2m. The acquisition is expected to be completed in Jul 2020.

An Earnings-accretive Acquisition

• The acquisition will increase Frasers Centrepoint Trust’s interest in ARF from 24.82% to 36.89%. This, together with the holdings of Frasers Property (SGX:TQ5)'s 63.1%, raises the group’s shareholding in ARF to ~100%. The acquisition will be fully funded by debt and is expected to raise Frasers Centrepoint Trust’s proforma gearing from 32.9% to 36.2%.
• Based on its proforma estimates, the deal is expected to be slightly DPU accretive at 0.13%, while NAV remains unchanged.

One Step Closer to Acquiring Assets Under ARF

• We see this as one step closer to acquiring the assets under ARF which owns five suburban retail malls (Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines) in Singapore and one suburban retail mall in Malaysia (likely Setapak Central). Being purely in a suburban mall space, ARF’s portfolio fits well into Frasers Centrepoint Trust’s portfolio and if acquisitions materialise, would further enhance Frasers Centrepoint Trust’s position as a pure suburban mall landlord.
• Quality malls are hard to come by in Singapore at reasonable prices and we see the potential acquisition of the assets under ARF as a good opportunity for Frasers Centrepoint Trust to widen its footprint in the suburban space and further underpins its income stability.
• ARF’s assets attract strong traffic of 86 person psf versus listed malls’ 84 person psf on average. Aside from retail malls, ARF also owns an office property, Central Plaza in Tiong Bahru, Singapore.

Maintain ADD

• We maintain ADD on Frasers Centrepoint Trust at an unchanged DDM-based target price of S$2.49.
• We continue to like Frasers Centrepoint Trust for its suburban mall focus and believe that it will see the fastest recovery from Covid-19 as it is less reliant on tourist shoppers. The stock is trading at 1x P/BV, slightly below its 5-year mean of 1.1x. We believe Frasers Centrepoint Trust's share price will be supported by the potential acquisitions of ARF assets.
• Upside risks include accretive acquisitions while downside risks include prolonged impact from Covid-19.

Source: CGS-CIMB Research - 1 Jul 2020