Frasers Centrepoint Trust - RHB Invest 2018-10-25: Dominant Mall Positioning Mitigates Challenges


Frasers Centrepoint Trust - Dominant Mall Positioning Mitigates Challenges

  • Maintain NEUTRAL, Target Price of SGD2.19 from SGD2.24, 2% downside.
  • Frasers Centrepoint Trust (FCT)’s FY18 results were slightly below our estimates, due to one-off items. Its three larger malls (88% of FY18 NPI) should continue performing steadily, mitigating the weakness in its smaller malls.
  • While the overall occupancy rate should remain steady, we expect rental reversions to moderate further to low single digits. Uplift could come from the completion of AEI at Causeway Point, as well as acquisitions.
  • Meanwhile, high retail space supply and fast-changing consumer trends remain as challenges.

Rental reversions to moderate further.

  • Frasers Centrepoint Trust’s 4QFY18 (Sep) rental reversions moderated sharply to 0.2% (3Q: 5%), bringing overall FY18 rental reversions to 3.2%, the lowest in 10 years.
  • Management explained that lower reversions for the quarter were due to the strategic repositioning of its tenant mix at Causeway Point.
  • Looking ahead, of its three key large malls, we only see room for positive rental reversions from Causeway Point (post-asset enhancement initiative (AEI)), as it has already optimised rental rates in Northpoint City North Wing (NCNW) and Changi City Point (CCP).
  • We trim our rental growth assumptions to 1-3% for FY19, from mid-single digit levels.

Mall occupancy rates have improved.

  • Occupancy at NCNW (including Yishun 10 retail podium) rose 4ppt q-o-q to 96.5%, as the mall continues to gain good tenant traction post-AEI. Occupancy rate improvements were seen in all other malls, too, except for Causeway Point which dipped 1.5ppt on translational vacancy.
  • For Anchorpoint Shopping Centre, it signed a new F&B tenant, which should increase the occupancy rate by 6ppt to 95% in the coming quarters.
  • We expect the overall occupancy to remain stable, at 95% in FY19.

Causeway Point AEI a necessary move to strengthen positioning.

  • Frasers Centrepoint Trust’s plan to build an underground pedestrian link (UPL) connecting Basement 1 of Causeway Point and Woods Square is a positive and necessary move, in our view.
  • Overall, it expects to incur capex of SGD15m, and the returns should come in the form of a slight NLA increase (in the second level of the mall) and higher shopper traffic – which should translate to better rental rates. Construction will commence in Feb 2019, and be finished by end-2019. A slight disruption in its occupancy rate at Basement 1 is expected during that period.

Acquisitions – a potential.

  • Frasers is the low REITs in Singapore (28.6%), which gives it ~SGD500m in debt with 40% as a comfortable potential acquisition one-third owned Centrepoint Northpoint South in Singapore.
  • Frasers is also its sponsor’s assets in Australia (preferring Sydney and Melbourne), and may enter the market at an opportune time. FCT is also Bedok at the right on tying this up by recycling capital into assets.

Maintain NEUTRAL, Target Price drops to SGD2.19.

  • We trim FY19-22F DPU by 3-4%, by lowering rental growth assumptions and assuming flattish occupancy levels. Our DDM-derived Target Price is based on CoE of 7.5% and a terminal growth rate of 1.75%.
  • Key risks: prolonged weakness in retail space demand, and rising e-commerce trends disrupting traditional retail space demand.
  • Key re-rating catalysts are yield-accretive acquisitions and a pick-up in retail sales.


Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-10-25
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 2.19 DOWN 2.240