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Moody’s confirms Frasers Centrepoint Trust’s Baa1 rating; outlook stable

MOODY’S Investors Service has confirmed the ‘Baa1’ issuer rating for Frasers Centrepoint Trust (FCT) with a stable outlook, as it expects the mainboard-listed trust’s credit metrics to improve after its equity issuance to partially fund two acquisitions.

This concludes the review by Moody’s to potentially downgrade FCT’s rating.

It placed FCT under review on March 6, after the trust entered into 12 conditional sale-and-purchase agreements to buy a 17.13 per cent stake in PGIM Real Estate AsiaRetail Fund (PGIM Fund) for S$342.5 million.

FCT completed the PGIM Fund stake purchase in April, and now holds an 18.8 per cent interest. Its sponsor, Frasers Property, acquired a further 47.8 per cent, giving FCT and Frasers Property a combined 66.6 per cent interest in the fund.

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PGIM Fund owns and manages six retail malls in Singapore, one office property in Singapore and four retail malls in Malaysia.

In its second recent acquisition, FCT on May 16 announced it it will buy a one-third interest in suburban mall Waterway Point from its sponsor Frasers Property for S$433.3 million, and launch an equity fund-raising of at least S$377.4 million.

FCT has since carried out a private placement, raising S$369.6 million. It plans to supplement these proceeds with an announced preferential offering of around S$67.6 million.

The trust’s leverage - measured by adjusted net debt/Ebitda - is expected to increase immediately after the Waterway Point acquisition, for the fiscal year to Sept 2019, Moody’s said.

But its leverage will likely still fall to below seven times in FY2020, thanks to a full year of earnings, which means it will still stay within the 7.5-times threshold set for the ‘Baa1’ rating, Moody’s noted.

The transaction is subject to approval from unit holders.

Both acquisitions - of Waterway Point and PGIM Fund - improve FCT's earnings resiliency and earnings and geographic diversification, Moody’s said.

The agency holds a stable outlook on the trust as it expects FCT will continue to deliver “strong operating results and maintain its strong financial profile”, it said on Wednesday.

The ‘Baa1’ rating reflects the stability of the trust's income from good quality, well-located suburban retail malls in Singapore, which have exhibited resilient operating track records.

FCT's rating is constrained by its small scale compared to its similarly rated peers, as well as the concentration risk from its largest asset, Causeway Point, Moody’s said.

Nonetheless, the concentration risk has declined over the years as the trust has expanded its operations, and is partially mitigated by the trust's diverse tenant base.

Similar to other Singapore-based real estate investment trusts, FCT faces inherent liquidity risks, due to its high dividend payout ratios and minimal cash balances, Moody's notes.

Units of Frasers Centrepoint Trust were trading up one Singapore cent or 0.4 per cent at S$2.42 as at 3.36pm on Wednesday.