Frasers Centrepoint Trust - Maybank Research 2023-08-31: Shrinking To Grow; Divesting Changi City Point Above Book

• Frasers Centrepoint Trust's announced on 30 Aug the divestment of Changi City Point for S$338m, ~4% above valuation and implying 4.31% exit yield based on FY22 net property income. Frasers Centrepoint Trust will use the proceeds to repay loans with higher interest rates, strengthen its financial base and position for further portfolio reconstitution.
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Deal details

• Changi City Point is a mall located close to the Changi Business Park on a residual land lease of 46 years. The catchment mainly comprises business park tenants. The tenant mix includes factory outlet shops.
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Strategic merits and financial impact of the deal

• The divestment improves the portfolio attributes. Frasers Centrepoint Trust's committed occupancy will increase from 98.7% to 99.3%. Average gross rent psf and tenant sales psf will increase by ~4%.
• Meanwhile, on a pro-forma basis, the debt repayment will lower aggregate leverage from 40.2% to 37.1%, improve hedge ratio of fixed interest rate loans from 63% to 73% and reduce all-in cost of borrowing from 3.7% to 3.6%.
• The deal is NAV neutral and 1.85% DPU dilutive based on Frasers Centrepoint Trust's pro-forma FY22 financials. The dilution is mainly because of the lower cost of debt prevailing in FY22.
• According to management, the cost of debt to be repaid was ~3% in FY22 and will be ~5.04% based on the current 1-month SORA.

Shifting gears for bigger & better; reiterate BUY

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Krishna Guha Maybank Research | https://www.maybank-ke.com.sg/ 2023-08-31 SGinvestors.io

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