This morning, retail REIT Frasers Centrepoint Trust (SGX:J69U) held its extraordinary general meeting (EGM) to seek unitholders’ approval on the REIT’s proposed acquisition of the remaining 63.1% stake in AsiaRetail Fund Limited (whose portfolio consists of Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square, Tampines 1, and Central Plaza), proposed equity fund raising, as well as the proposed divestment of Bedok Point.

I have attended the EGM as a unitholder of the REIT and for the benefit of those who weren’t able to attend, in this post, you’ll find a summary of the presentation by Mr Richard Ng (the CEO of the REIT) on how the acquisition of AsiaRetail Fund Limited is beneficial for the REIT and its unitholders, results of the resolutions that were put to vote, along with responses to some of the questions raised by unitholders…

Benefits of the Proposed Acquisition of AsiaRetail Fund Limited

The following are some of the key benefits of the REIT’s proposed acquisition of the remaining 63.1% stake of AsiaRetail Fund Limited to highlight:

  • From 7 malls in the REIT’s portfolio currently, post-acquisition, its portfolio will have 11 malls. Some of the other key statistics include REIT’s portfolio net lettable area increasing from 1.4m sq ft to more than 2.3m sq ft, along with the number of leases increasing from 800 to more than 1,500.
  • The proposed acquisition is a DPU-accretive one, and based on its DPU for FY2019, after the acquisition of AsiaRetail Fund Limited, as well as after the divestment of Bedok Point, the REIT’s DPU will be increased to 13.02 cents/unit (from 11.99 cents/unit) – this represents an increase by 8.59%.
  • Post-acquisition, Frasers Centrepoint Trust will become 8th largest S-REIT (in terms of market capitalisation), as well as being the 8th largest S-REITs by free float – this will result in a higher index weightage in the FTSE EPRA/NAREIT index, and this will also expand the REIT’s outreach to new investors.
  • The enlarged portfolio will also see a reduced concentration risk from any single asset (from around 30% now to no more than 22% post-acquisition.)
  • In terms of tax leakages, Mr Ng share that currently, the REIT is incurring costly tax leakages of approximately S$4.7m annually as a partial owner of AsiaRetail Fund Limited. However, post-acquisition, it will be able to reduce its tax by approximately $400k to $500k a month.
  • While post-acquisition, the REIT will see its gearing ratio increased to 39.3% (from 35.0% currently), but Mr Ng highlighted that its average cost of debt will be reduced to 2.3% (from 2.5%), and at the same time, its weighted average debt maturity will be extended to 4.3 years (from 2.3 years at present.)

Results of the Resolutions

The following are results of the 5 resolutions proposed at the EGM:

#1. Approval of the proposed acquisition of the remaining 63.1% stake in AsiaRetail Fund Limited at approximately S$1,057.4m – 100.00% voted for the proposal, with 0.00% voted against.

#2. Approval of the proposed equity fund raising (of up to 628,019,324 new units in Frasers Centrepoint Trust) – 99.72% voted for the proposal, with 0.28% against.

#3. Approval of the proposed sponsor placement – 99.79% voted for the proposal, with 0.21% voted against.

#4. Approval of the proposed whitewash resolution – 97.16% voted for the proposal, with 2.84% voted against.

#5. Approval of the divestment of Bedok Point to Chempaka Development Pte Ltd, a wholly-owned subsidiary of the Sponsor, for a sale price of S$108.0m – 99.99% voted for, with 0.01% voted against.

Answers to Questions Raised by Unitholders

  • On the management’s outlook for suburban malls, Mr Ng expressed his confidence of the suburban retail market remaining resilient over the long-term. He added that with the enlarged portfolio post-acquisition, the REIT is in a stronger position to tap on further growth opportunities (including acquisition opportunities) which may present themselves over time.
  • With regard to whether or not the REIT will be carrying out any asset enhancement initiatives (AEI) for its retail malls, Mr Ng explained that while there are AEI opportunities for Hougang Mall and Tampines 1, but the current pandemic situation presents challenges in managing manpower and project schedules.
  • In terms of valuations, Mr Ng said there was a question on the difference between the current valuation and a valuation assuming Covid-19 did not happen, to which he responded that one of the factors that was taken into account by the independent valuers was the cash flows generated from the properties over a long-term period (usually 10 years or longer.) As such, the independent valuers do not expect the properties’ fundamentals or long-term prospected to be negatively impacted. With that, Mr Ng opined that he do not expect the current valuations (and a valuation assuming Covid-19 did not happen) to be significantly different.
  • As to a question on why the REIT is doing the acquisition at this point in time, Dr Choong (who is the Chairman of the REIT) explained that as the seller is not obligated to sell its stake to the REIT, the opportunity may be lost in the future (should the REIT continue to put this plans on hold.) Also, the acquisition will allow the REIT to put an end to the costly tax leakages (which is the case at the moment as a partial owner of the AsiaRetail Fund Limited.) Most importantly, Dr Choong added that the proposed transaction is a yield accretive one.
  • A unitholder also asked about the REIT’s plans after its acquisition of AsiaRetail Fund Limited, to which Dr Choong reassured unitholders that there are still ample opportunities for growth, including the retail assets in the Sponsor’s portfolio, additional stake in Waterway Point, as well as third-party opportunities that may present themselves from time to time. He also added that the REIT’s management will continue to explore and evaluate growth opportunities which will enhance the performance of the REIT, and its returns to unitholders.
  • Finally, as to whether or not there are plans for the REIT to acquire the remaining stake in Waterway Point (currently held by 3 joint venture partners) and Northpoint City South Wing (currently held by Frasers Property Limited and TCC Prosperity Limited, which is a wholly-owned subsidiary of TCC), Dr Choong responded that they will continue to explore and evaluate opportunities as they arise.

Related Documents

Disclaimer: At the time of writing, I am a unitholder of Frasers Centrepoint Trust.

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