On Sept 3, the manager of Frasers Centrepoint Trust announced its plans to acquire the 63.1% in PGIM Asia Retail Fund (ARF) it does not own, currently held by Frasers Property (FPL). FCT's manager also announced the proposed sale of Bedok Point. Prior to the acquisition, ARF will divest a Malaysian mall.

Upon completion of the transactions, FCT’s retail properties in its portfolio will increase from seven to 11, and its net lettable area will expand by about 64% to 2.3 million square feet, placing FCT among the largest suburban retail mall owners in Singapore. FCT’s portfolio size will increase to approximately $6,650 million. Post the proposed Equity Fund Raising, FCT is expected to be among the top ten largest S-REITs by market capitalisation, the manager announced. 

ARF’s portfolio of suburban retail malls shares similar characteristics to FCT’s malls, which includes the focus on Essential Services, being located in populous residential areas and above or near transportation nodes. ARF’s Singapore portfolio includes five retail malls: Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1 and one office property Central Plaza.

To fund the purchase, FCT has announced a placement and preferential equity fund raising to raise $1,300 million. As an example, if FCT issues 585.6 million units priced at $2.22 apiece, the acquisition would provide a distribution per unit accretion of 8.59% based on FY2019’s pro forma numbers. Hence DPU would rise to 13.02 cents from FY2019’s 11.97 cents. 

However, based on 9M2020 to June 30 this year (FCT has a Sept year-end) and including the rental disbursement by the ARF properties, the accretion is less, with DPU rising just 0.4%.

Whatever the short-term DPU accretion, looking past Covid-19, this is a transformational transaction. In a recent report dated Aug 31, Credit Suisse upgraded FCT to a buy, based on the potential acquisition of the PGIM ARF portfolio.

FPL has given an undertaking to subscribe to its pro rata share of the preferential equity raising. Since this is an interested party transaction, FCT's unitholders get to vote on the acquisition in an EGM. 

Units in FCT closed 8 cents lower, or 3.1% at $2.54 on September 3.