Friday, 4 September 2020

Frasers Centrepoint Trust (J69U) Acquisition of Shares in AsiaRetail Fund Limited and Proposed Divestment of Bedok Point


Frasers Centrepoint Trust already owns ~36.89% of the Asiamall Retail Fund (ARF). With this acquisition, they will own the entire 100% and it will be converted to an LLP which allows for REIT tax benefits, rather than being taxed as it is currently held as investment. This transaction also includes a divestment of a Malaysia mall that is held in the ARF.

Both properties are being divested to the Sponsor (Frasers Property (TQ5)).

The funds will be raised from a mix of private placement and preferential offers. The illustrative price of the new units are priced at $2.22, making the adjusted price about $2.42 at the based on the last close.
Price based on 3rd September 2020
Outstanding units from ShareInvestor
The private placement price might be $2.22 so retail investors may end up getting a higher subscription price.
With the completion of the acquisition, the portfolio is much more 'heartland'. I'm still not a fan of Changi City Point though.
The Pro forma DPU increases due to the divestment of Bedok Point. Without Bedok Point, its actually not accretive in the current environment. It's a very good acquisition without the rental rebates but this will depend on how long government support and COVID will last. Will landlords still be able to command the same or even higher rentals going forward?
 
Bedok Point being divested to the sponsor may create some form of conflict of interest. I don't really understand the terms but it most likely will allow the sponsor to inject the property back to FCT at a higher valuation if the property value increases, or at a lower price (but higher valuation) if the property valuations decreases.

Anyway, the acquisition of the ARF was expected for some time as Frasers Property kept increasing their stake it in and acquiring the manager. This might also be a good time for them to divest while property valuations are still high. While the heartland malls are packed, the requirement of social distancing eats into the profit margins of F&B businesses which may require landlords to lower rents to help them. It also feels like the impact of recession is not being felt yet.

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