Frasers Centrepoint Trust - Phillip Securities 2019-10-25: Primed And Awaiting Imminent Growth

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FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - Primed And Awaiting Imminent Growth

• FRASERS CENTREPOINT TRUST (SGX:J69U)'s 4Q19 and FY19 NPI and DPU in line with our forecast.
• Positive rental reversions, higher footfall and increase in FY19 revenue (excluding non-cash accounting adjustments).
• Growth catalysts include Frasers Centrepoint Trust’s pipeline assets, intensification of Woodlands and Punggol will benefit CWP and WWP, renewed strength in fringe retail rents and possible acquisition of PGIM’s assets.
• Maintain ACCUMULATE with higher Target Price of S$3.11 (prev S$2.77). Higher target price due to the addition of the 6.7% stake in Waterway Point and Frasers Centrepoint Trust’s increased stake in PGIM.

The Positives

Positive rental reversions of 4.8% for FY19 (FY18 +3.2%).

• Highest reversions registered at Causeway Point (CWP) (+7.4%), Frasers Centrepoint Trust’s largest contributor to revenue. Reversions for the rest of the assets ranged from -1.4% to 2.2%.

Shopper traffic up 8.9% in 4Q19 while tenant sales came in flat.

• Northpoint City North Wing (NPNW), Changi City Point (CCP) and Waterway Point (WP) registered growth in tenant sales between 2% to 6%. However, this was offset by lower tenant sales at due to business disruptions at CWP (partial closure of basement due to underground pedestrian link (UPL) works) and Anchorpoint (changes in anchor tenant).

The Negatives

Occupancy slipped 0.3ppts q-o-q to 36.5%.

• Causeway Point’s occupancy was 97.0%, lower compared with 98.4% last year due to the ongoing works relating to the construction of the UPL link at its basement level, which is expected to complete in December 2019.
• Anchorpoint’s occupancy currently at 79.0%, is expected to improve to 94.2% when the new tenants complete their fitting-out progressively in October and November 2019.

Outlook

• Frasers Centrepoint Trust’s malls are located in suburban residential areas with the following characteristics:
  1. Comparatively lower retail space per capita, for instance ( < 3 sqft of mall floorspace per capita versus > 6 sqft in the central parts of SG)
  2. Located adjacent to transport hubs (MRT stations and bus interchanges)
  3. Suburban districts are beneficiaries of SG’s decentralisation and will experience an increase in catchment population
  4. Revenue underpinned by necessity spending
• The two largest malls in Frasers Centrepoint Trust’s portfolio will benefit from URA’s draft master plan 2019. CWP will benefit from the repositioning of Woodlands Regional Centre as the largest economic hub while Waterway Point will benefit from the business park and university infrastructure aimed at supporting digital economy jobs.
• PGIM Real Estate AsiaRetail Fund (PGIM ARF) is an open-ended fund primarily holding suburban retail assets in SG (6 assets) and Malaysia (2 assets). PGIM’s malls bear similar characteristics and yields as Frasers Centrepoint Trust’s assets. Frasers Centrepoint Trust's interest in PGIM has progressively increased (due to the redemption of PGIM shareholders from the fund) and currently stands at 24.8%. Together with Sponsor Frasers Property Ltd’s (FPL) 63.1% stake, the group has an 87.9% 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.

Maintain ACCUMULATE with higher Target Price of S$3.11 (previously S$2.77).

• We adjusted our forecast to account for the addition of the 6.7% stake in Waterway Point and Frasers Centrepoint Trust’s increased stake in PGIM. We believe there is further upside to Frasers Centrepoint Trust’s valuation, with growth catalysts stemming from
  1. Pipeline assets;
  2. Potential acquisition of PGIM’s assets;
  3. Frasers Centrepoint Trust’s capability to tap on strength in fringe retail rents.
• Our target price translates to a FY20e/FY21e distribution yield of 5.4%/5.8% and a total upside of 17.5%. See Frasers Centrepoint Trust Share Price; Frasers Centrepoint Trust Target Price.

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2019-10-25

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 3.11 UP 2.770