FRASERS CENTREPOINT TRUST (SGX:J69U)
Frasers Centrepoint Trust - Beneficiary Of Northern Gateway, Adding Depth To Suburban Retail; Upgrade To BUY
- Causeway Point, FRASERS CENTREPOINT TRUST (SGX:J69U)’s largest retail mall, will benefit from the development of Northern Gateway and Woodlands Regional Centre. More office buildings will sprout up around Causeway Point, bringing a larger office crowd to the suburban mall during weekdays.
- The acquisition of a 33.3% stake in Waterway Point and 18.8% stake in PGIM Real Estate AsiaRetail Fund (PREAF) adds depth to Frasers Centrepoint Trust’s specialisation in suburban retail malls. We expect the two assets to account for 29% of NPI in FY20.
- Upgrade to BUY. Target price: S$2.71.
WHAT’S NEW
Causeway Point sits at the heart of Woodlands Regional Centre.
- The government plans to intensify the development of Woodlands Regional Centre under Master Plan 2019. Woodlands Regional Centre serves as the strategic centre for the Northern Gateway, which encompasses Agri-Food Innovation Park, Senoko Food Zone and high-tech farming at Lim Chu Kang. It covers 100ha of developable land and would create 100,000 jobs when fully developed. New infrastructure to be built includes integrated healthcare complex Woodlands Healthcare Campus (acute care hospital, community hospital and nursing home to open in phases starting 2022) and the 21.5km North-South Expressway, linking Woodlands to the CBD.
- Woods Square, comprising two office towers and two 4-storey blocks, with total NLA of 534,500sf of office space came on-stream in 4Q19. Frasers Centrepoint Trust has invested S$15m to build an underground pedestrian link between Causeway Link and Woods Square to be completed by Dec 19, bringing more office crowd to Causeway Point during weekdays. URA has also put up a white site at Woodlands Avenue 2 on the reserve list, which could be developed into a mixed project with at least 484,400sf of office GFA.
- Causeway Point accounted for 47% of Frasers Centrepoint Trust’s NPI in 2QFY19 (34% of NPI post acquisition of stakes in Waterway Point and PREAF).
Improved connectivity to Causeway Point.
- Causeway Point sits right on top on the interchange between North-South Line (NSL) and Thomson-East Coast Line (TEL). The 43km TEL with 31 MRT stations will open in phases starting this year and be fully completed by 2024. The first stage of TEL with three MRT station - Woodlands North, Woodlands and Woodlands South - would commence operations in 2019.
- With TEL coming on stream, Woodlands would have two MRT lines traversing in the North-South direction, bringing commuters back and forth from the CBD. In future, Causeway Point would be only one MRT stop away from the planned cross-border rail link connecting Singapore to Johor Bahru, Malaysia.
Adding depth to suburban retail through Waterway Point and PGIM.
- Frasers Centrepoint Trust has entered into a conditional sale and purchase agreement to acquire 33.3% of Sapphire Star Trust, which owns suburban retail mall Waterway Point at 83 Punggol Central and is adjacent to Punggol MRT station, for S$433.3m.
- Waterway Point is a 99-year leasehold 4-storey suburban family-oriented shopping mall with NLA of 371,200sf. According to Cistri, the population in Waterway Point's primary catchment area is estimated to expand by 4-year CAGR of 3.8% to 210,000 in 2023. The area also has one of the lowest retail mall floor space per capita in Singapore at 2.8sf (nation-wide average: 5.9sf).
PREAF brings initial access to a basket of six retail malls.
- Frasers Centrepoint Trust has completed the acquisition of an 18.8% stake in PGIM Real Estate AsiaRetail Fund for S$376m.
- PGIM Real Estate AsiaRetail Fund (PREAF) owns and manages six retail malls - Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square, Tampines 1 and Liang Court, and one office building Central Plaza.
- According to press reports, CapitaLand (SGX:C31) and City Developments (SGX:C09) are looking to jointly acquire Liang Court from PREAF. If a deal is struck, PREAF would sharpen its focus on suburban retail malls.
STOCK IMPACT
Leadership renewal.
- Mr Richard Ng was named CEO-designate for Frasers Centrepoint Trust. He will officially succeed Dr Chew Tuan Chiong as CEO on 1 Jul 19. Mr Ng is currently Head of Asset Management. He is a veteran in the regional property market with 27 years of experience. He has previously held many senior positions at CapitaLand and was Director of Asset Management at PGIM (Singapore).
Positive rental reversion.
- Frasers Centrepoint Trust achieved positive rental reversion of 2.0% in 2QFY19, led by Causeway Point (+6.2%), Northpoint City North Wing (including Yishun 10 retail podium) (+2.7%), and YewTee Point (+2.0%).
- Frasers Centrepoint Trust has delivered 12 consecutive years of growth in revenue, income, NAV and DPU since its IPO in 2006.
Pipeline from sponsor Frasers Property.
- Frasers Centrepoint Trust could acquire the remaining 70% stake in Waterway Point or Northpoint City South Wing.
EARNINGS REVISION/RISK
- We raise our DPU forecasts by 4.7% for FY19 to factor in the acquisition of 33.3% stake in Waterway Point and 18.8% stake in PREAF.
VALUATION/RECOMMENDATION
Upgrade to BUY.
- Our target price of S$2.71 is based on DDM (required rate of return: 6.5%, terminal growth: 1.2%).
SHARE PRICE CATALYST
- Positive newsflow on rising retail rentals, yield-accretive acquisitions or asset enhancement ortunities.
Jonathan KOH CFA
UOB Kay Hian Research
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Peihao LOKE
UOB Kay Hian
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https://research.uobkayhian.com/
2019-05-23
SGX Stock
Analyst Report
2.71
UP
2.320
