FCT – OCBC
Goes the private placement route
Goes the private placement route. Frasers Centrepoint Trust (FCT) announced that it has raised S$182m through a private placement of 137m new units. The issue price of S$1.33 is at the top end of the indicated S$1.29 to S$1.33 price range. It is priced at a 5% discount to the last closing price of S$1.40. FCT said the placement was oversubscribed. The funds will be used to part-finance the acquisitions of YewTee Point (YP) and Northpoint 2 (NP2) from its sponsor. FCT will pay S$164.6m for NP2 and S$125.7m for YP, at 5.78% and 5.87% net property income yields respectively, based on FCT’s forecast of forward income.
Advanced distribution details. The new units are expected to be listed on 04 Feb and will be eligible to enjoy distributions thereafter. Existing units will receive an advanced distribution for the period from 01 Jan to 03 Feb. The manager currently estimates this amount at 0.71 S cents with the exact quantum announced later. The units trade ex-advanced distribution on 01 Feb with the distribution payable on or around 17 Mar.
Larger equity issue than expected. The equity fund raising (EFR) method was in line with our expectation and preference (more accretive). We had assumed an S$1.30 issue price. The amount of net proceeds raised is the biggest surprise. We had assumed FCT would fund the S$290 m acquisitions on the basis of 45-55 debt-equity – requiring net proceeds of roughly S$160m net proceeds. In contrast, the actual net proceeds of S$177.8m are roughly equivalent to 61% of the asset cost.
Strategic benefits. The acquisition of NP2 will combine what is physically one mall at the REIT level. The acquisitions will also increase FCT’s portfolio size by 25% to S$1.46b and further diversify the portfolio. Additionally, the placement is likely to increase free float and boost trading liquidity. Lastly, the increase in size and float may, in our view, raise FCT’s profile with institutional investors (thus benefiting retail investors).
Valuation. The manager expects the completion of the acquisitions to be no later than Jul 2010. Note we currently assume the acquisitions are completed on 01 Apr but, with the EFR out of the way, an earlier completion is increasingly likely. We are adjusting our estimates for the actual equity issue details. We increase our fair value estimate for FCT from S$1.47 to S$1.50 and upgrade our rating to BUY (12.6%
total return).