FRASERS CENTREPOINT TRUST (SGX:J69U)
Frasers Centrepoint Trust - A Transformational Year
- Maintain NEUTRAL and Target Price of SGD 2.55, 7% downside plus 4.6% yield.
- FRASERS CENTREPOINT TRUST (SGX:J69U)’s FY19 (Sep) DPU was slightly below, accounting for 98% of forecasts, mainly due to higher borrowing costs and slightly lower subsidiary contributions.
- Operationally, Frasers Centrepoint Trust remains strong with healthy occupancy improvements, coupled with continued positive rental reversions. See Frasers Centrepoint Trust Announcements.
- While Frasers Centrepoint Trust’s niche positioning as a sub-urban retail landlord offers a defensive attribute, we believe most of the positives are priced in post a strong YTD rally of +25%.
Healthy operating metrics continue while rent growth expected to slow down.
- Portfolio occupancy improved 1.8ppt y-o-y to 96.5% with a healthy occupancy improvement seen across all its malls. Overall, we believe Frasers Centrepoint Trust’s suburban malls have weathered well the challenges posed from high retail supply and a sluggish retail environment on the back of its strong positioning and active management efforts.
- After registering a strong rental reversion of 4.8% in FY19, we expect rental reversions to be 2-3% in FY20F on the back of a slowdown in retail sales and a high percentage (c.36% of portfolio) of lease expires in malls.
A milestone year in terms of acquisitions but with upside priced in.
- During FY19, Frasers Centrepoint Trust successfully completed the much awaited acquisition of Waterway point (40% stake) and acquired a 24.8% stake in PGIM ARF (which holds five suburban malls) investing c.SGD910m. The acquisition, along with associated fund raising, resulted in the stock being included in the FTSE EPRA/NAREIT index which resulted in an increased liquidity and investor base. (See SGX Market Update: Recent SGX Additions to FTSE EPRA Nareit Global Developed Index)
- Gearing post recent acquisitions remains comfortable at 32.9% and presents a healthy debt headroom of > SGD 500m for acquisitions. In the near-term, we believe Frasers Centrepoint Trust’s focus will be on extracting value from recent acquisitions and reaping synergies.
- Potential acquisition targets in the medium-term include Northpoint City North wing and the remaining stake in the PGIM portfolio. With a sizeable growth in its portfolio assets management it also guided that it is open to divest some of its smaller malls at a right price.
Key upside/downside risks.
- Positive share price catalysts are continued yield compression across REITs sector, stronger than expected rental growth in its key malls and accretive acquisitions/divestments.
- Key downside risks are a sharp slowdown in retail sales and a continued exit of major brands/operators out of the Singapore market.
DPU and Target Price adjustment.
- We have lowered our FY20-21F DPU by 2% factoring in a slightly lower rental growth.
- We have also fine-tuned our COE assumptions to 6.8% (-10 bps) resulting in an unchanged Target Price.
- See Frasers Centrepoint Trust Share Price; Frasers Centrepoint Trust Target Price; Frasers Centrepoint Trust Dividend History.
Vijay Natarajan
RHB Securities Research
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https://www.rhbinvest.com.sg/
2019-10-24
SGX Stock
Analyst Report
2.550
SAME
2.550
