Frasers Centrepoint Trust - CGS-CIMB Research 2018-09-04: A Visit To The Northern Malls

FRASERS CENTREPOINT TRUST SGX:J69U

Frasers Centrepoint Trust - A Visit To The Northern Malls

Our visits to Northpoint City and Causeway Point reaffirm our view that the malls should enjoy stronger traffic going forward due to several new developments.
Beyond AEIs, we believe the trust could be looking at acquiring Waterway Point given its low gearing of 29.3%.
Maintain ADD with a higher target price of S$2.49 after factoring in stronger growth from the two malls in FY21-22F.

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We recently visited Frasers Centrepoint Trust’s Northpoint City (NC), which completed its S$60m AEI in 1Q18, and Causeway Point (CP), which will soon be linked via an underground pedestrian link (UPL) to Woods Square.
We visited the malls on a Tuesday at 3pm-5pm. Despite the non-peak hours, both malls had decent traffic, which is not a surprise given the high population density in Woodlands and Yishun. These are two of the biggest malls in the northern region and are well connected to MRTs and bus stations; they have been performing well with occupancy rates of over 98% and relatively consistent positive rental reversions.

Causeway Point will be constructing a underground pedestrian link to Woods Square (an under construction integrated office and retail development) from end-Feb 2019 to Dec 2019. This will help to increase traffic flow into the mall when Woods Square is completed in 2020/21 as the underground pedestrian link provides
1. a direct link between the mall and Woods Square, and
2. a shorter underground link to Woodlands MRT station via the mall.
Management forecasts positive ROI from the construction of the underground pedestrian link. Also, we should see higher traffic flow into the mall upon the completion of phase 1 of the Thomson-East Coast MRT line in 2019 as Woodlands MRT station will be the interchange between the Thomson Line and the North South Line.

Northpoint City North Wing underwent an AEI to integrate it with the newly built South Wing in 2QFY16-4QFY17. While North Wing is much older than South Wing, we see no apparent difference as both the façade and tenant mix of North Wing were refreshed after the AEI. The mall has two grocers and a lot of eateries, including 3 food courts, which are crowd pullers.
Together with South Wing, Northpoint City has two underground links to the Yishun MRT station. Although South Wing only opened in Dec 2017, it has achieved a high occupancy rate with good rentals. In the next 12-24 months, South Wing will be connected to the upcoming Yishun bus interchange and will open a community centre, which should increase traffic flows into Northpoint City.

There are two retail properties owned by Frasers Property Limited (SGX:TQ5) that have the potential to be injected into Frasers Centrepoint Trust.
We think Waterway Point (33.3% owned by Frasers Property Limited), which is more mature compared to Northpoint City South Wing, should be ready to be injected into Frasers Centrepoint Trust. We understand that Waterway Point has an NLA of 371.8k and its occupancy rate stood as high as 99.9% as at Sep 2017. Valuation as at Sep 2017 was S$1,148m.

We continue to like Frasers Centrepoint Trust for its resilient portfolio. We maintain our FY18-20 DPU forecasts but lift our FY21-22 numbers after factoring in stronger growth for Causeway Point and Northpoint, which raises our DDM-based target price.
Upside risk could come from new acquisitions while a downside risk is weaker-than-expected rental growth.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-09-04

SGX Stock Analyst Report ADD Maintain ADD 2.49 Up 2.410