Frasers Centrepoint Trust - Phillip Securities 2019-07-29: All The Right Moves, In All The Right Places

FRASERS CENTREPOINT TRUST (SGX:J69U) | SGinvestors.io FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - All The Right Moves, In All The Right Places

  • FRASERS CENTREPOINT TRUST (SGX:J69U)'s 3Q19 NPI and DPU in line with our forecast.
  • Better performance from higher portfolio occupancy and positive rental reversions despite the softer retail sector.
  • Growth catalysts include Frasers Centrepoint Trust’s ROFR pipeline, heightened positioning of Causeway Point, renewed strength in fringe retail rents and possible acquisition of PGIM’s assets.
  • Upgrade to ACCUMULATE with higher Target Price of S$2.77 (prev S$2.31). Higher target price due to the acquisition of Waterway Point (33.3% stake) and a lower risk-free rate assumption.



The Positives


Better performance despite softer retail sector outlook.

  • Shopper traffic up 6.1% y-o-y, due to higher traffic at NPNW and YewTee Point. Tenant sales psf grew a modest 2.9% y-o-y for the two months ending May 2019. Revenue improved 1.6% y-o-y with all malls recording higher revenues, save for Causeway Point (CWP) whose occupancy took a hit due to AEI works for the underground pedestrian link (TBC December 2019).
  • Largest contributors to revenue growth were NPNW (+3.8%), Changi City Point (+5.5%) and Bedok Point (+13.9%).

Higher portfolio occupancy and positive rental reversions.

  • Portfolio occupancy improved from 96.0% to 96.8%. Better occupancy at all malls except Changi City Point (- 30bps) and Anchorpoint (occupancy unchanged). Significant improvements in occupancy at Bedok Point (88.7% to 95.0%), YewTee Point (94.1% to 96.5%) and Northpoint City North Wing (NPNW) (96.5% to 97.1%).
  • Positive rental reversions at all malls, except YewTee Point (-2.5%), with reversions for the portfolio as a whole coming in at +3.1%.


The Negatives


Post-Waterway Point acquisition gearing increased to 32.7% (FY18 28.6%) and lower interest coverage ratio of 4.5x (FY18 5.6x).

  • Gearing increased a significant 410bps post-Waterway Point acquisition. However, the gearing of 32.7% is still conservative in our view, given the gearing limit of 45%.
  • Borrowing cost ticked up 10bps to 2.7% due to higher percentage of borrowing on fixed cost (3Q19/FY18 67%/64%).


Outlook

  • Frasers Centrepoint Trust’s malls are located in suburban residential areas with comparatively lower retail space per capita, for instance, < 3 sqft of mall floorspace per capita versus > 6 sqft in the central parts of Singapore.
  • Frasers Centrepoint Trust’s biggest asset, CWP, stands to gain tremendously from the transformation of Woodlands Regional Centre, which will anchor itself as the largest economic hub in the North region. Waterway Point (33.3% stake), Frasers Centrepoint Trust’s latest acquisition, is also primed to benefit from the absence of supply coming onto the outer north-east area, and will likely remain the dominant mall.
  • Frasers Centrepoint Trust’s interest in PGIM increased from 18.8% to 21.13% due to the redemption of PGIM shareholders from the fund. Together with Sponsor Frasers Property (SGX:TQ5)’s 53.74% stake, the group has a 74.87% stake in PGIM. As a private fund, PGIM does not enjoy tax transparency treatment that Frasers Centrepoint Trust does - we estimate PGIM’s tax rate to be approximately 10% - 15%. PGIM’s portfolio consists of several suburban retail malls and further entrenches Frasers Centrepoint Trust’s presence in the suburban retail space. With the group’s controlling stake in PGIM, Frasers Centrepoint Trust’s acquisition of some of PGIM’s assets appears to be in the cards and would yield immediate tax savings.


Upgrade to ACCUMULATE with higher Target Price of S$2.77 (prev S$2.31).

  • We adjusted our forecast to account for the acquisition of the 33.3% stake in Waterway Point and Frasers Centrepoint Trust’s increased stake in PGIM. We reduced the risk-free rate owing to the lower interest rate environment – and in doing so, our cost of equity is reduced from 6.90% to 6.55%.
  • We believe there is further upside to Frasers Centrepoint Trust’s valuation, with growth catalysts stemming from
    1. ROFR pipeline.
    2. Possible acquisition of PGIM’s assets.
    3. Re-positioning of CWP
    4. Frasers Centrepoint Trust’s capability to tap on the renewed strength in fringe retail rents.





Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2019-07-29
SGX Stock Analyst Report ACCUMULATE UPGRADE NEUTRAL 2.77 UP 2.360



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