Frasers Centrepoint Trust - Maybank Kim Eng 2018-10-25: Preferred Retail Play


Frasers Centrepoint Trust - Preferred Retail Play

4Q/FY18 NDR: Positive mall growth + deal potential

  • We hosted an NDR for Frasers Centrepoint Trust (FCT) in Singapore following its 4Q18 results.
  • Key highlights include:
    1. discussions about its 4Q/FY18 operational performance;
    2. positive growth outlook for its malls; and
    3. potential acquisition opportunities.
  • We marginally lowered FY19E/20E est.’s (1-2%) following an operationally strong quarter and introduced FY21. Our DDM-based SGD2.55 Target Price (COE: 7.0%, LTG: 2.0%) is unchanged.
  • We continue to prefer Frasers Centrepoint Trust for its strengthening suburban mall footprint, visible growth drivers and potential acquisition catalysts. BUY.

Operationally strong quarter

  • Excluding FRS 17 and 39 accounting adjustments, 4Q18 revenue and NPI grew 5.3% y-o-y and 1.4% y-o-y.
  • Property expenses rose 14.3% y-o-y on higher utility costs, carpark-related expenses at Anchorpoint (from FY18) and one-off items (professional fees, ad-hoc maintenance).
  • Operationally, NPI at Northpoint (NCNW) and ChangiCity Point (CCP) jumped 12.7% y-o-y and 11.7% y-o-y on stronger occupancies, up from 92.5% to 96.5% at Northpoint (NCNW) and 92.6% to 93.8% at ChangiCity Point.
  • Portfolio occupancy improved to 94.7% with stronger performance across all malls except for Causeway Point (CWP) due to transitional vacancies.
  • Excluding NCNW, shopper traffic rose 5.0% y-o-y, while tenant sales accelerated to +3.6% y-o-y (from 3.4% y-o-y in 3Q18).

Looking to stronger reversions in FY19

  • Rental reversion was slower at +0.2% from +5.0% in 3Q, bringing full-year to +3.2%. Reversions were slower at Causeway Point (+1.3%) from deliberate tenant remixing while Bedok Point was weak at -23.3%.
  • Its occupancy should improve to 85% in 1Q19 as a new restaurant opens; management shared that rents have likely bottomed out. Meanwhile its Anchorpoint vacancy has been backfilled by a new F&B tenant set to open in 1Q 2019.
  • Expiring leases in FY19 are concentrated at Causeway Point (37.9%) and Anchorpoint (54.7%). They are mostly anchor tenants and food courts, with low renewal risk. We see stronger rental growth upside at Causeway Point from underlying demand.

Acquisitions supported by sponsor pipeline assets

  • Its low 28.6% gearing and estimated SGD500m debt headroom (at 40% gearing) will support acquisitions.
  • Frasers Centrepoint Trust’s sponsor pipeline assets – the Northpoint City’s South Wing and Waterway Point (33% interest, now in its first lease renewal cycle) could strengthen its suburban mall footprint, while expansion into Australia is further down the road.

Swing Factors


  • Earlier-than-expected pick-up in leasing demand for retail space driving improvement in occupancy.
  • Better-than-anticipated rental reversions.
  • Accretive acquisitions or redevelopment projects.


  • Prolonged slowdown in economic activity could reduce demand for retail space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-10-25
SGX Stock Analyst Report BUY MAINTAIN BUY 2.550 SAME 2.550