Frasers Centrepoint Trust

DBS Group Research, Equity, June 24

EARLIER this month, Frasers Centrepoint Trust (FCT) announced it had issued 88 million shares at S$1.835 a share (S$161.5 million in total) in a private placement to partially fund its S$305 million acquisition of Changi City Point (CCP), which was completed on June 16.

This was well subscribed, accounting for about 52 per cent of the acquisition price, on the higher end of our initial assumptions of 40-45 per cent, based on a gearing cap of 35 per cent (vs 31 per cent post-acquisition and placement).

As CCP is still in its first rent cycle and about 60 per cent of leases are up for renewal in FY14/15, the manager is uniquely poised to deliver earnings growth by refreshing the mall's tenant mix to better cater to its growing catchment population.

While there are no plans to increase the relative proportion of F&B tenants from the existing level of 44 per cent, we understand that the manager is looking to bring in F&B tenants that better cater to the preferences of students at the upcoming Singapore University of Technology and Design and workers at Changi Business Park.

Furthermore, for its retail tenants, the manager is looking to offer a better complementary shopping experience for the weekend expo crowds.

Through these initiatives, we forecast FCT to deliver two-year earnings CAGR (compound annual growth rate) of 6 per cent for FY15-16.

At current levels, FCT offers an attractive FY14-16F yield of 6.0-6.8 per cent - higher than Singapore-focused retail S-Reits, which are trading at yields of 5.5-6.6 per cent.

We have marginally increased our FY14 forecast earnings estimates to account for revised funding assumptions, no change to our TP of $2.13. FCT offers investors a 24-25 per cent total return for FY14/15. We maintain our BUY call.

BUY