Frasers Centrepoint Trust - Maybank Kim Eng 2019-10-24: Taking A Breather


Frasers Centrepoint Trust - Taking A Breather

Organic growth easing, Downgrade to HOLD

  • FRASERS CENTREPOINT TRUST (SGX:J69U)’s 4Q19 DPU of SGD2.91cts (+1.8% y-o-y) slightly missed both consensus and our estimates. Occupancies dipped slightly, while rental reversions were +3.9% y-o-y (+4.8% for FY19). See Frasers Centrepoint Trust Dividend History.
  • The stock have outperformed the sector YTD by 6%, helped by stronger DPU growth fundamentals and contribution from recent deals. While we believe its organic growth remains intact, we see rental growth easing on its suburban assets against slowing retail sales.
  • Upside catalysts from further acquisitions are not visible, given Singapore’s tight retail cap rates.
  • We have adjusted DPUs and roll forward our DDM-based Target Price to SGD2.85. Cut to HOLD. See Frasers Centrepoint Trust Share Price.
  • Our S-REIT sector bias is now skewed to industrial and hospitality REITs, with higher yields and DPU recovery. See recent report: Singapore REITs - Raising Limits, Adding Growth.

Results a slight miss

  • Revenue was down 0.5% y-o-y (but up 2.8% y-o-y excluding FRS 116 and 109 accounting adjustments), while NPI was -0.1% y-o-y (+4.8% y-o-y). Portfolio occupancy dipped from 96.8% to 96.5% with weaker occupancies at Causeway Point (AEI works to complete at year-end), Changi City Point (from 96.4% to 95.9%) and Anchorpoint (95.0% to 79.0%). The latter saw transitory vacancies, but pre-commitment was 94.2%, with a changeover of grocer Cold Storage to Mr DIY and renovation of the food court.
  • Rental reversion of +3.9% brings full-year to +4.8%, versus +3.2% for FY18. This was driven by stronger reversions at Causeway Point (+4.4%), Northpoint City North Wing (+5.6%) and Changi City Point (+10.3%).
  • Portfolio shopper traffic improved by 8.9% y-o-y, but tenants’ sales (on psf) was flat, in line with the weak Singapore retail sales outlook.

Assets are well-located, supporting rents

  • The bulk of Frasers Centrepoint Trust's leases by NLA (35.7% of gross rental income) that will be renewed in FY20 are concentrated at Causeway Point and Northpoint City North Wing, its two largest and best performing malls.
  • We expect rental growth to be backed by limited new supply within the respective micro-markets, while management works hard to drive yield improvements on its existing malls, with rents already trading at highs.

Balance sheet strong, but lacks deal visibility

  • Frasers Centrepoint Trust's balance sheet remains strong with gearing at 32.9% as of end-Sep 2019; above its 5-year average of 28.9%, and implies an estimated SGD1.0b in debt headroom.
  • We see limited visibility on its acquisition growth pipeline, given the lower Singapore retail cap rates and those from its sponsor.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-10-24
SGX Stock Analyst Report HOLD DOWNGRADE BUY 2.85 UP 2.800