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).

FCT launches private placement

Reit to use proceeds to part finance its acquisition of malls

FRASERS Centrepoint Trust (FCT), a shopping centre real estate investment trust (Reit), yesterday launched a private placement of 137 million new units to part finance its acquisition of Northpoint 2 and Yew Tee Point malls.

The issue price range is $1.29 to $1.33 per new unit, which will generate gross proceeds of $176.7 million to $182.2 million. The actual issue price will be determined after a book-building process.

Of these sums, $173.3 million to $177.8 million will be used to pay for the two malls, which are costing FCT about $295 million in total, inclusive of transaction costs. The rest will be funded by debt.

The issue price range of $1.29 to $1.33 per new unit reflects a discount of 3.7 per cent to 6.6 per cent to the adjusted volume-weighted average price of $1.3805 per unit for trades done on the full market day on Jan 25. Trading in FCT units was halted yesterday.

The manager of FCT has appointed DBS Bank as the sole financial adviser and Citigroup Global Markets Singapore and DBS Bank as the joint lead managers and underwriters of the private placement.

Existing unitholders will receive an advance distribution per unit of about 0.71 cent for the period from Jan 1, 2010 to the day immediately before the date of issue of the new units under the private placement.

The books closure date for the advance distribution will be Feb 3 at 5pm.

FCT has in place a range of loan facilities which it may use to part finance the purchase of Northpoint 2 and Yew Tee Point.

These include a total of $185 million in unutilised bridge loan facilities as well as a total of $1.165 billion that remains untapped under two separate multi-currency medium-term note programmes.

The trust – which currently owns Causeway Point in Woodlands, Northpoint in Yishun and Anchor Point in the Queensway/ Alexandra Road area – will see its gearing increase from about 30.4 per cent as at Jan 1, 2010 to 33.2 per cent after the acquisition of the two malls.

The value of the trust’s deposited property is expected to increase by 25.2 per cent from about $1.167 billion as at Jan 1 to $1.462 billion.

Acquisitions approved at EGM

Results in line. Frasers Centrepoint Trust (FCT) reported S$23.3m in 1Q10 revenue, up 19.6% YoY and down 6.2% QoQ. The strong YoY growth was due in large part to the income boost from the completion of asset enhancement works at Northpoint (NP). Meanwhile, we attribute the QoQ weakness to the FRS39 accounting adjustment at 4Q earnings – this is a typical 4Q blip for FCT. FCT will distribute 1.91 S cents for the quarter, up 14.4% YoY. On a QoQ basis, the payout represents a 6.4% decline but this is primarily due to retained cash from previous quarters boosting distributions in 4Q09. Excluding retained cash, the decline is 2% QoQ.

Portfolio performing well. The portfolio continues to perform well especially as occupancy picks up at NP. The retail mall is occupied at 95% as of Dec 09 versus 90% three months ago and 52% a year ago. The manager said that committed occupancy at NP stands at 99% as of end-Dec 09. The overall portfolio enjoyed occupancy of 98.6%. Leases renewed / replaced this quarter enjoyed a 3.9% increase over preceding rents.

Acquisitions approved at EGM. Unitholders yesterday approved the acquisition of two retail malls from FCT’s sponsor Fraser & Neave [FNN, NOT RATED]. FCT will pay S$164.6m for Northpoint 2 (NP2) and S$125.7m for YewTee Point (YP), at 5.78% and 5.87% net property income yields respectively, based on FCT’s forecast of forward income. The manager expects the completion of the acquisitions to be no later than July 2010. FCT will raise equity of up to 152m units (24.3% of existing units) to partially fund the purchase. The exact structure, issue price and timing of the equity fund raising (EFR) will be determined later based on “market conditions”. We assume the acquisitions are purchased on a 45-55 debtequity basis with equity raised at S$1.30.

Valuation. The manager said 95% of gross rental income is locked in for FY10. We have raised our retail rent growth rates from 0% to +5% per annum for FY10 and FY11. This is line with the revisions to our CapitaMall Trust [HOLD, FV: S$1.83] earnings estimates. At the same time, we have made some upwards adjustments to our cost of debt estimate, which brings our assumed WACC higher. Our fair value estimate slips slightly from S$1.49 to S$1.47. FCT is currently trading at 1.15x NAV and a 5.8% FY10F yield. Maintain HOLD. Key re-rating catalyst would be how (and at what issue price) FCT executes the planned acquisitions.

Positive rental reversions

• Results in line; maintain Outperform. 1Q10 DPU met Street and our expectations (26% of our estimate). Net property income (NPI) grew 24% yoy, thanks to positive rental reversions and increased contributions after the asset enhancement of Northpoint. We expect Northpoint II and Yew Tee Point to contribute from 2HFY10. We maintain our estimates and DDM-based target price of S$1.73 (discount rate 7.9%). We see stock catalysts coming from distribution growth and occupancy resilience.

• NPI of S$15.9m, up 24% yoy. The growth was mainly attributed to positive rental reversions (average +1.3% p.a.) at Causeway Point and higher contributions from Northpoint after the completion of asset enhancement work in Aug 09. Average rents at Northpoint increased 20% from S$11psf to S$13.20psf after refurbishment.  Distributable income of S$12m grew at a slower pace than NPI, by 4% yoy due to
higher interest expense on additional debt drawn down to finance capex.

• Portfolio occupancy grew 1.3% pts to 98.6%. Northpoint’s occupancy improved the most, by 5.2% pts to 95.1%. Committed occupancy was 99% as at Dec 09.

• Asset leverage of 29.7%; NAV unchanged at S$1.22. Debt due in FY10 is only S$10m or 2.9% of FCT’s total debt.

• Northpoint II and Yew Tee Point to contribute. Earlier this month, FCT announced the acquisition of Northpoint II and Yew Tee Point from its sponsor, FCL. We expect these two assets to add to distributable income from the second half of this year. But as expiry leases in 2010 are limited to 5% of FCT’s gross rental revenue, we expect organic growth to be rather muted in forward quarters.

FCT distributable income up 15%

Q1 gross revenue up 19.6%, with net property income surging 24%

FRASERS Centrepoint Trust (FCT) reported a distribution per unit of 1.91 cents for its first quarter ended Dec 31 2009, a 14.4 per cent increase from 1.67 cents for the corresponding period a year ago, in line with analysts’ estimates.

Its distributable income rose 15.1 per cent from $10.4 million to $12 million for the same periods.

The group’s gross revenue saw a 19.6 per cent gain from the same period in 2008 to $23.3 million, which in turn sent net property income for the quarter surging 24 per cent to $15.9 million, driven by improvement in revenue from the Northpoint enhancement works.

Property expenses for the quarter rose 10.6 per cent over the previous year’s to $7.4 million, mostly due to the increase in property tax.

‘FCT maintained strong operational momentum with portfolio occupancy rising to 98.6 per cent as Causeway Point registered full occupancy as at December 2009,’ said DMG & Partners Securities analyst, Jonathan Ng, in his report yesterday.

Mr Ng had maintained his ‘buy’ call on the stock with a target price of $1.66, implying a 5 per cent yield at fair value.

‘Rental renewals remained strong, with a total of 10 leases renewed at an average of 4 per cent increment above preceding rental rates. Occupancy costs in FCT’s malls remain healthy, with tenants at Causeway Point and Anchorpoint registering average occupancy costs of 13.4 per cent and 16.2 per cent respectively as at Nov 2009, well in line with market benchmarks,’ Mr Ng added.

For the quarter, net income rose 19.7 per cent from $8.4 million to $10.1 million.

The group’s total return after tax, however, surged 89.5 per cent from $5.8 million to $10.9 million, mainly because of a 90 per cent decrease in unrealised fair value losses in derivatives.

FCT’s proposed acquisition of Northpoint 2 and YewTee Point, approved during its extraordinary general meeting yesterday, and slated to be completed before July, will stand it in good stead, credit rating-wise, according to DMG’s Mr Ng.

‘Apart from the accretion FCT will enjoy from these acquisitions, we believe the injection of the two assets may improve FCT’s credit rating as its asset-concentration risks will substantially be reduced with income contributions from Causeway Point dropping from 64 per cent to 51 per cent,’ said Mr Ng.

FCT’s unit price fell 3 cents in trading yesterday, closing at $1.40.