Frasers Centrepoint Trust
As we have been highlighting refinancing savings as a potential catalyst for some time, FCT’s new MTN issuance wasn’t unexpected. Still, the good rates it secured were a nice surprise. We continue to like its resilient suburban retail exposure.
We raise DPUs and DDM-based target price (discount rate:7.9%) to factor in interest cost savings on refinancing. Maintain Outperform, with other catalysts expected from stronger contributions from Causeway Point’s AEI and Northpoint.
FCT has issued two new MTNs (S$70m at 2.3% due 2015 and S$30m at 2.85% due 2017). Proceeds will be used for the refinancing of existing short-term borrowings, AEI, investments and working capital.
What We Think
We expect part of the proceeds to be channelled to the refinancing of its S$75m MTN due in FY12. We expect refinancing savings, given a fairly high interest cost of 4.8%. We have been highlighting this catalyst for some time though the good rates secured still came in as a slight surprise. Further positives were a slight lengthening of debt maturity. Savings are, however, small at 2% of FY13 DPU, given the small size of the loan (14%of total borrowings).
Meanwhile, we expect the remaining S$25m to be used for the funding of an impending rights issue by Hektar REIT. FCT owns 31% of Hektar REIT(trading at consensus forward DPU yields of 7.3%), which recently obtained approval for a rights issue to fund the acquisition of two retail assets in Malaysia.
What You Should Do
The overall impact is marginal, given the small size of the loan. Maintain Outperform for FCT’s suburban retail exposure. We see catalysts from stronger-than-expected contributions from Causeway Point’s AEI and Northpoint.
Publish date: 13/06/12