Frasers Centrepoint Trust - CGS-CIMB Research 2019-04-24: Deepening Exposure To Suburban Malls


Frasers Centrepoint Trust - Deepening Exposure To Suburban Malls

  • Record-high 2Q19 DPU of 3.137 Scts was in line at 26% of our full-year forecast, helped by 4.8% y-o-y increase in NPI.
  • Frasers Centrepoint Trust has deepened its exposure to suburban malls with a total stake of c.18.8% in the PGIM Real Estate AsiaRetail Fund for a total of c.S$376m.
  • Maintain ADD with a higher DDM-based Target Price of S$2.53.

FCT's 2Q19 results in line due to lower property expenses

  • FRASERS CENTREPOINT TRUST (SGX:J69U)’s 2Q19 DPU of 3.137 Scts (+1.2% y-o-y, +3.9% q-o-q) was a record high and formed 25.9% of our full-year forecast.
  • Revenue increased to S$49.7m (+2.3% y-o-y) while NPI increased at a faster rate to S$36.4m (+4.8% y-o-y) due to lower utilities expenses and lower property tax from write-back of provisions no longer required.
  • Distributable income was S$28.8m (-1.5% y-o-y) due to higher cash component of management fees.
  • Frasers Centrepoint Trust's 1H19 DPU of 6.157 Scts (+0.9% y-o-y) was also in line, forming 50.7% of our full-year forecast.

Rental reversions and shopper traffic improved

  • Rental reversion continued its positive trend at +2.0% in 2Q19; this was mainly driven by Causeway Point (CP) which had a strong +6.2% reversion. Portfolio occupancy was down slightly to 96.0% (96.4% in 1Q19) due to transitional vacancies at CP and Northpoint City North Wing (NCNW). According to the management, those vacancies have already been backfilled.
  • Shopper traffic in 2Q19 rose 2.4% y-o-y; for the quarter, all malls except Bedok Point saw higher shopper traffic. However, tenant sales declined 1.3% y-o-y mainly due to transitional vacancies at CP and the renovation of its food court.

Building up stake in PGIM to increase exposure to suburban malls

  • The acquisition of minority stakes, 17.1% and 1.7% in PGIM Real Estate AsiaRetail Fund for S$342.5m and S$33.5m respectively, will allow Frasers Centrepoint Trust to increase its exposure to sub-urban malls in Singapore. The fund has 6 retail malls and an office property in Singapore in addition to 4 retail malls in Malaysia. The Singapore assets, being mature suburban malls, are similar to Frasers Centrepoint Trust’s portfolio.
  • The acquisitions are presently funded by a bridging loan although this will eventually be converted into a mix of debt and equity funding.

Gearing remains healthy at 28.8%

  • Both gearing ratio and average all-in cost of borrowing crept up slightly to 28.8% and 2.8%, from 28.6% and 2.6% respectively. This could be attributed to the refinancing of expiring loans due in FY19; the refinancing also increased weighted average debt maturity to 2.4 years from 1.6 years.

Maintain our ADD call with a higher Target Price of S$2.53

  • We maintain our ADD call with a higher Target Price of S$2.53 after accounting for the additional share of associate’s profits from the PGIM fund and adjusting our risk-free and terminal growth rates in light of the more dovish interest rate outlook.
  • We like Frasers Centrepoint Trust for its exposure to stable suburban malls although slower-than-expected rental reversion could be a key downside risk.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-04-24
SGX Stock Analyst Report ADD MAINTAIN ADD 2.53 UP 2.350