Frasers Centrepoint Trust - CGS-CIMB Research 2019-08-29: More Room To Grow


Frasers Centrepoint Trust - More Room To Grow

  • FRASERS CENTREPOINT TRUST (SGX:J69U) is expected to re-rate upon its successful inclusion in the EPRA/NAREIT Index in Sep 2019.
  • We also believe it is entering a growth phase, driven by Waterway Point and the potential asset acquisitions from PREAFL.
  • We maintain ADD with a higher Target Price of S$2.90, in view of its growth potential.

Potential inclusion in FTSE EPRA NAREIT Developed Asia Index

  • Following the completion of the equity fund-raising in May and Jun 2019 to fund the purchase of PREAFL and Waterway Point, Frasers Centrepoint Trust’s investable market cap has improved substantially, fulfilling all the criteria needed to qualify as a member of the EPRA/NAREIT Index.
  • We expect Frasers Centrepoint Trust’s share price to re-rate post its inclusion in the index, which could happen as soon as the Sep review. Recall that Frasers Centrepoint Trust’s share price rose 5.4% after its announcement of its inclusion in the index in Mar 2019.
  • Of the 41 REITs listed in Singapore, only 14 are part of EPRA/NAREIT Index, indicating that Frasers Centrepoint Trust’s visibility on investors’ radars should improve substantially after the inclusion.

More growth from Waterway Point and asset injection from PREAFL

  • We believe the investment is more of a strategic move considering the
    1. large 74.8% stake acquired by Frasers Centrepoint Trust and Frasers Property in Real Estate Asia Retail Fund Limited (PREAFL) and
    2. quality malls under PREAFL which are hard to come by at reasonable prices and fit perfectly into Frasers Centrepoint Trust’s positioning as a suburban mall focused operator.
  • To reap the most benefit out of this investment, we think the assets should be parked under Frasers Centrepoint Trust eventually for tax efficiency if the opportunity arises. We estimate that the acquisition of all of PREAFL’s Singapore retail assets could boost our DPU forecast by about 3% and Target Price to S$2.98, as well as make Frasers Centrepoint Trust the third-largest retail REIT in Singapore by AUM.
  • We expect Waterway Point, which is a relatively new mall located in the developing Punggol area, to put Frasers Centrepoint Trust on a new growth trajectory, driven by increasing population.

Stable performance from existing malls

  • We see positive rental reversion from Causeway Point, as the mall completes its underground pedestrian link at B1 by Dec 2019. As for Northpoint City North Wing, we expect minimal rental reversion in the next 1-2 years, as it has just undergone a major renovation between 2QFY16 and 1QFY18. There is no impact from the opening of Jewel on Changi City Point.
  • On Yew Tee Point and AnchorPoint, we expect stable performance as the REIT balances occupancy rate with rental income.

Maintain ADD

  • We believe Frasers Centrepoint Trust is set for a re-rating. A near-term catalyst would be the successful inclusion into the EPRA/NAREIT Index, while in the longer term, we believe Frasers Centrepoint Trust is poised to enter a new growth cycle following recent acquisitions.
  • We raise our DDM-based target price to S$2.90 as we roll-over our valuation to FY20F and raise our terminal growth assumption.
  • Downside risks include weaker-than-expected rental growth.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CFA CGS-CIMB Research | https://www.cgs-cimb.com 2019-08-29
SGX Stock Analyst Report ADD MAINTAIN ADD 2.90 UP 2.790