Frasers Centrepoint Trust to issue 55m shares to fund Bedok Point acquisition

Frasers Centrepoint Trust has unveiled details of its funding for the $127m purchase of Bedok Point, which was announced last month. It is looking to issue up to 55m new units at an indicative issue price of $1.38 via a private placement, which will raise some $75.9m. The balance will be funded by $65m of borrowings. The financing mix will see debt making up 51% of the purchase cost, and equity 49%.

Post-acquisition, FCT’s gearing will rise modestly from 31.7% to 33.5%. The acquisition is expected to lift its FY12F DPU by around 5%, from 8.5 cents to 8.58 cents. At the closing price of $1.38, this represents a prospective yield of 6.2%. We continue to like FCT for its exposure to the resilient suburban retail sector and the REIT remains our top pick for the sector.

While the initial accretion from Bedok Point has only incremental impact on DPU, we believe there are further rental upside as the mall achieves rental stability and enters into the second leasing cycle 2-3 years down the road. As well, FCT’s biggest asset, Causeway Point, is progressing well in its asset enhancement works (more than 50% completed) and could lift NPI by 10%, or $9.3m on its completion.

Our target price of $1.79 is based on a dividend discount model with 8.8% COE and 2% terminal growth. Maintain Buy.