REIT watch: FCT reinforces suburban mall portfolio, remains on analysts’ buy lists

On July 1, Frasers Centrepoint Trust

(FCT) announced it has exercised its rights of pre-emption under the byelaws of PGIM Real Estate AsiaRetail Fund (ARF) to acquire another 12.07% stake for $197.2 million. The acquisition will be fully funded by debt. The net asset value (NAV) of the ARF shares as at March 31 is $194 million. The acquisition, to be completed this month, will increase FCT’s interest in ARF to 36.89% from 24.82% prior to the acquisition. The acquisition is accretive on an FY2019 pro forma basis with DPU rising 0.13% to 11.987 cents from 11.972 cents. FCT’s NAV per unit is expected to remain flat at $2.21 after the acquisition.

ARF is the largest non-listed retail mall fund in Singapore and holds five suburban malls near MRT stations, namely, Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1; office property Central Plaza; and a retail mall in Malaysia.

The pro-forma gearing of FCT as at end FY2019 will increase to 36.2% from 32.9%, its announcement states. As at end 1HFY2020 on March 31, FCT’s gearing stood at 37.4% because of the short-term borrowing of $80 million drawn on March 27 to repay a $90-million note tranche which matured on April 3. After the note repayment, gearing has dropped to 33.3%.

In February 2019, FCT acquired a 17.13% stake in PGIM ARF for $342.5 million. Last March, FCT acquired a further 1.67% for $33.5 million. Frasers Property (FPL) acquired a 48% stake in PGIM ARF for $971 million last February and March. Then in July and September last year, following the divestment of Liang Court to CapitaLand and City Developments for $400 million, PGIM ARF undertook a capital redemption exercise and FCT’s stake rose to 24.82% while sponsor FPL’s stake in PGIM ARF rose to 63.1%.

Together, FPL and FCT own 100% of PGIM ARF. While FCT does not have a right of first refusal arrangement with FPL, analysts expect

FPL to eventually divest its stake to FCT. “We are positive on FCT’s inorganic growth as well as the fact that this marks a significant step towards acquiring the rest of the malls under PGIM ARF in future,” says Soochow CSSD Capital Markets in an update. Soochow is reiterating its “buy” recommendation, as have CGS-CIMB, DBS Research and UOB Kay Hian, following the July 1 announcement.