Sunday, September 06, 2020

What will I do about Frasers Centrepoint Trust?

I traded Frasers Centrepoint Trust to make quick kopi money a few times this year.

When I last nibbled it on 7 Aug 20 at 2.34, I decided to keep for long term because after visiting the grounds of NorthPoint City and Causeway Point, I am convinced that the retail landscape has recovered and will be stronger than pre-covid days.

The picture below depicts the queue of waiting to go through thermal scanner to enter Northpoint City when the mall was at maximum capacity on 5 Sep 2020.


From supermarkets, cafes, f&b outlets to electronics and furniture stores, the crowd is back and the only difference from pre-covid days is the implementation of safe distancing rules by theory and wearing of masks.

The huge pent up demand after the circuit breaker, work from home creating demand for furniture and electronics product needs, and travel lock down curbing short trip visits to JB for cheap grocery shopping and food have resulted in suburban malls to be a favourite hangout for shopping and food other than exercising in parks.

Frasers Centrepoint Trust (FCT) announced on 4 Sep 2020 that it plans to raise $1.39 billion from equity fund raising through private placement and preferential offering to purchase the remaining 63.1% stake in AsiaRetail Fund (ARF) for $1.06 billion from its sponsor Frasers Property.

ARF owns five suburban retail malls - Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1 in Singapore and Central Plaza office building in Malaysia.

This is a strategic, shrewd and well-timed move as Setapak Central, a mall in Kuala Lumpur will be sold off by ARF and Bedok Point which is more ulu in Bedok central will be divested at the same time. This also comes at around the time when Capitamall Trust and Capitaland Commercial Trust are merged, leaving FCT as the only pure Singapore Retail Reit. The share price of FCT has also run up recently, making equity fund raising palatable.

This proposal will greatly strengthen FCT's portfolio of suburban retail malls to 11 properties spread all over Singapore island. FCT will become the 8th largest Reit by market capitalisation and 53.6% of its gross rental income will derive from tenants providing essential services. Most importantly to investors, its DPU is accretive by 8.59%.

While the details and timeline of preferential offering are not released yet, the EGM date has been announced on 28 Sep 2020, Monday at 10am. Shareholders can click on the link in FCT's website to register the EGM and mail back the forms to vote.

From the pro forma illustration, there are 585.6m new shares to be created in this equity fund raising.

I hope there will be more involvement from preferential offering to retail shareholders relative to preferential offering to institutional shareholders. In May 2019, out of the 184m new shares created, only 28.8m new shares were allocated to preferential offering and it was on a basis of 31 for 1000 existing shares. I hope this time round will be on a basis of at least 200 for 1000 existing shares.

I expect the share price of FCT to languish between $2.50 and $3 in the years to come in a low interest environment where we still have a Reit offering more than 4% yield based on an estimated DPU of 12 cents at $2.60. There will be minimal buying opportunities and we can only hope for another health or financial crisis for its share price to crash in the future. Other than that, dips that may come from interest rate hikes and US-China tensions may present small window opportunities to add.

The preferential offering is a no brainer decision. I will subscribe to my entitled shares and excess shares at the indicative price of $2.22. I believe this will be a great long term investment for at least next 5 to 20 years.

Thanks for reading.

With love & peace,

No comments: