Frasers Centrepoint Trust - DBS Research 2019-07-24: Resilient While Transitioning To Next Growth Stage


Frasers Centrepoint Trust - Resilient While Transitioning To Next Growth Stage

  • FRASERS CENTREPOINT TRUST (SGX:J69U)'s 3QFY19 DPU fell 1.7% y-o-y to 3.0 Scts due to enlarged unit base from preemptive fund raising for Waterway Point, which will start to contribute in 4Q19.
  • Operational metrics still strong, reflecting broad-based occupancy improvements and tenants’ sales growth.
  • EPRA NAREIT index inclusion a possible re-rating catalyst.
  • Maintain BUY; Target Price of S$2.95.

What’s New

3QFY19 DPU fell 1.7% y-o-y to 3.0 Scts, mainly due to transitory factors.

  • FRASERS CENTREPOINT TRUST (SGX:J69U)'s 3Q19 DPU eased 1.7% y-o-y to 3.0 Scts, which we attribute mainly to Frasers Centrepoint Trust’s enlarged unit base following its preemptive equity fund raising exercise for Waterway Point, which was subsequently acquired in July 2019. This was partly buffered by c.S$8m worth of distributions received from its investments in Hektar and PGIM. This included its share of one-off divestment gains from Liang Court, which we estimate to be c.S$3.75m.
  • Overall 9M19 DPU of 9.157 Scts formed c.76% of our FY19F projection, in line.

Firm underlying performance.

  • During the quarter, revenue rose 1.6% y-o-y to S$49.1m. While NPI fell 1.1% y-o-y to S$34.6m, mainly due to an absence of property tax refunds in 3Q18. Excluding this, NPI growth would likely have been positive. NPI margins fell to 70.5% in 3Q19 (from 72.4% in 3Q18 and 73.3% in 2Q19), while distributable income jumped 12.4% y-o-y to S$31.8m, mainly on higher contributions from associates.
  • Frasers Centrepoint Trust retained approximately S$1.86m in anticipation of possible near-term fluctuations arising from the recent acquisitions, which will help smoothen its distribution profile as the group transitions to its next stage of growth.

Sequential operating improvements demonstrates the defensiveness of suburban malls amid concerns over competition from Jewel.

  • Portfolio occupancy reached a three-year high of 96.8% vs 96% in the previous quarter, led by broad-based improvements across its assets, particularly Bedok Point and YewTee Point. Occupancy at Bedok Point jumped to 95% in 3Q19 from 88.7% in 2Q19 from onboarding of new F&B tenants. Coupled with positive rent reversions of 8.1%, this could be a sign that the worst is over for the mall.
  • Meanwhile, portfolio rental reversions averaged +3.1%, reflecting sequential improvements vs +2% in 2Q19.
  • Shopper traffic also increased 6.1% y-o-y, led by Northpoint City and YewTee Point. Higher tenants’ sales were also observed across all malls, growing 2.9% y-o-y on a psf basis for the portfolio on average.

An exciting quarter ahead.

  • Maiden contributions from Waterway Point are set to kick in from 4Q19, which will further enhance Frasers Centrepoint Trust’s growth profile in the upcoming quarters. Majority of renewals remaining in FY19F will come mainly from Causeway Point and Anchorpoint, which we understand have been largely pre-committed. The ongoing AEI at Causeway Point is also on track for completion in Dec 2018, which should further anchor the mall’s dominance in the North and growth trajectory in the medium term.
  • Additionally, we believe that Frasers Centrepoint Trust’s possible inclusion into the EPRA NAREIT Developed Asia Index in Sep 2019 could raise Frasers Centrepoint Trust’s visibility among investors, and potentially spark a further share price re-rating.

Carmen TAY DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-07-24
SGX Stock Analyst Report BUY MAINTAIN BUY 2.950 SAME 2.950