Frasers Centrepoint Trust Preferential Offering – A no brainer deal for me

Frasers Centrepoint Trust (SGX:J69U) (FCT) unitholders take note – there is a Preferential Offering ongoing and it requires action from you!

Here’s a quick write-up to bring you up to speed.

What is a preferential offering?

A preferential offering is also known as a non-renounceable rights issue. This means that the rights cannot be sold for cash if a shareholder does not want to pay for the rights to convert them to shares.

Frasers Centrepoint Trust’s Preferential Offering

The issue price is S$2.34 per new unit – only the unitholders would be entitled to this Offer and they must pay this amount in order to get the new units.

Each unitholder is entitled to 290 Preferential Offering Units for every 1,000 existing units in FCT.

For example, if you own 5,000 FCT units, you would be entitled to 1,450 units and you need to pay $3,393 to get all of them.

You can apply for excess units beyond your entitlement, subjected to availability.

You can also apply for fewer units than your entitlement.

Lastly, not subscribing for any new units is possible too but your percentage share of FCT would go down (dilution).

Why is Frasers Centrepoint Trust doing this Offer?

FCT is acquiring the remaining stake in a portfolio of 6 suburban malls as shown below.

FCT needs approximately S$1,334.7 million to make the acquisition and to pare down debt. It has decided to raise money via two avenues:

• Private placement (raising money from some investors but not available to all the unitholders)
• Preferential offering (for all unitholders)

FCT has just completed a round of private placement – 244,681,000 Private Placement Units were issued and raised approximately S$575.0 million. Out of which, S$405.0 million from the gross proceeds has been used to pare down FCT’s revolving credit and a secured bank loan. The remainder is pending payment for the acquisition.

The Preferential Offer aims to raise about S$760 million to fund the acquisition.

My thoughts about the Offer

I find this acquisition sensible and advantageous for FCT.

I like that FCT has stuck to its focus on suburban malls. I think suburban malls would be more resilient than the city malls during Covid-19 – getting essentials from nearby malls minimised the exposure to potential viral infection. Also, the work-from-home (WFH) trend could mean less travelling to the city area and workers are more likely to patronise a mall close to their homes. Meanwhile, malls in the city would not see tourists any time soon and lose some business from the WFH crowd.

This acquisition is a fabulous opportunity as Singapore is a land-scarce place and you don’t get a seller of malls in good locations often. It is good that FCT grabbed the opportunity.

Moreover, this is a yield accretive acquisition – the dividend per unit is expected to go up after the acquisition has completed and the newly acquired malls start contributing property income to FCT.

Lastly, the current trend is for REITs to get bigger in size. FCT would jump from 12th to the 8th largest S-REIT by market capitalisation after the acquisition. The advantages of a larger REIT include:

• Increase the chance to be added into stock indexes
• Attract more institutional investors
• Improve trading liquidity
• Increase credit worthiness and drive down borrowing cost
• Easier to raise money from capital markets with a larger pool of unitholders

Hence, it looks like a no brainer acquisition to me.

Important dates!

You can start to accept and subscribe to the offering from 9 October 2020 at 9.00 a.m. onwards.

The deadline is set on 19 October 2020 at 5.00 p.m. (9.30 p.m. for Electronic Applications).

The new units would be available for trading from 27 October 2020 9.00 a.m. onwards.

Disclosure and disclaimer: I am a unitholder of Frasers Centrepoint Trust and I intend to fully subscribe to this Offer. This is my personal view and bias. My situation may differ from yours.