Frasers Commercial Trust raises equity

Singapore-listed commercial property developer executes only the second major S-Reit deal of the year to fund the acquisition of an office block in Australia.

Singapore-listed Frasers Commercial Trust (FCOT) provided S-Reit investors with a rare opportunity to pick up new paper from the sector on Thursday with a S$140.1 million ($102 million) deal to fund the acquisition of an office block in Australia.

So far this year, there has only been one S$525 million equity offering for Keppel Infrastructure Trust in late May. The following month Canadian financial services group Manulife was forced to postpone its S$569 million initial public offering because of volatile markets. 

Since April, the FTSE S-REIT Index has not performed well, falling 6.2% on worries that an imminent rate hike in the US may dampen investor interest in yield-play investments.

However, FCOT appears to have caught a good window for its deal, with its units trading less than 3% below a S$1.58 two-year high. Sources close to the deal said many investors decided to participate because the transaction had been well sounded out and the company was very transparent over the use of proceeds.

As such the accelerated placement was covered within an hour of launch leading to pricing at the very top of the S$1.46 to S$1.48 indicative range.

At this level, the deal came at a 3.6% discount to the group's S$1.535 close and equated to a 6.7% distribution yield based on consensus 2015 estimates.

A total of 96 million units were sold, including an upsize option of 12 million units. Fraser Centrepoint and its subsidiaries took up 23.1 million units, equivalent to around 24% of the offering size.

About 40 accounts received allocations, of which one-third comprised private banking investors and the rest institutions, according to the source. Allocations were skewed towards the top long-only funds with 70% going to the top five accounts.

I come to a land down under

FCOT plans to use S$122.6 million (87.5% of the total proceeds) to fund the acquisition of 357 Collins Street, a 25 storey freehold Grade A office building in Melbourne with a total net leasable area of 31,920 square meters.

Total consideration of the acquisition is about A$237.7 million ($175 million).

357 Collins Street will be added to FCOT’s existing three properties in Singapore and two in Australia. The completion of the acquisition will increase FCOT’s portfolio value by 14.2% to about S$2 billion and total net leasable area by 15.1% to 243,667 square meters, according to the company’s exchange filings.

The company said the acquisition will complement and diversify its existing portfolio in Perth and Canberra by gaining exposure in Melbourne, the second largest office market in Australia.

The remainder of the proceeds will be used for debt repayment.

Year-to-date FCOT is up 12.03% and the stock appears to have momentum after rising 3.7% since a recent trough in mid-June. DBS currently has a target price of S$1.79 and notes the group recently delivered a 7% increase in third quarter dividends per unit. 

But it added that while FCOT currently has no financing needs until 2017, its average cost of debt may creep up above 3% if it takes on Australian dollar-denominated debt to fund 357 Collins Street.

Barclays, Citi and DBS were joint bookrunners on the equity placement.

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