Frasers Centrepoint Trust - CGS-CIMB Research 2019-12-09: The Only Pure Play In Suburban Malls

FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - The Only Pure Play In Suburban Malls

We expect FRASERS CENTREPOINT TRUST (SGX:J69U)’s income to remain resilient despite the weaker consumer spending, given its status as a pure suburban mall landlord in Singapore.
We expect more growth to come from Waterway Point and a potential asset injection from PGIM Real Estate Asia Retail Fund, with its other malls providing stable income.
We maintain ADD on the stock with an unchanged DDM-based Target Price.

We believe the investment in the PGIM Real Estate Asia Retail Fund (PREAFL) is a strategic move, considering:
1. the large 88% stake acquired by Frasers Centrepoint Trust and Frasers Property Limited (SGX:TQ5); and
2. the quality malls under PGIM Real Estate Asia Retail Fund, 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 believe the assets should be parked under Frasers Centrepoint Trust eventually for tax efficiency if the opportunity arises.
This coupled with the acquisition of Waterway Point, which is a relatively new mall located in the developing Punggol area, will put Frasers Centrepoint Trust on a new growth trajectory.

We see positive rental reversions from Causeway Point as the mall completes its underground pedestrian link (UPL) at B1 by Dec 2019. The UPL provides a shorter walkway to the Woodlands MRT, which we expect will result in stronger footfall in the mall.
As for Northpoint City North Wing, we do not expect strong rental reversions as the mall has already reaped strong reversions recently post-renovation. Having said that, we continue to expect strong performance from this mall, driven by higher occupancy in the South Wing and stronger traffic from the opening of the Yishun Integrated Transport Hub in Sep 2019.
Causeway Point and Northpoint City North Wing collectively accounted for 76% of Frasers Centrepoint Trust’s NPI in FY9/19.

Frasers Centrepoint Trust ended FY9/19 with a strong performance, continuing its uninterrupted positive rental reversion streak since listing. To recap, Frasers Centrepoint Trust delivered +4.8% rental reversions in FY19, stronger than the +3.2% in FY18. Its largest mall, Causeway Point, registered a +7.4% rental reversion in FY19 (vs. +6.4% in FY18). Its recently-acquired Waterway Point delivered a +5.1% reversion, while Northpoint City North Wing reported a lower +1.6% reversion, which was expected after the strong post-renovation reversions.
Being a pure suburban mall landlord in Singapore, we believe Frasers Centrepoint Trust will continue to deliver stable income despite the weak consumer spending. We expect a DPU growth of ~6% in FY20, with the acquisition of PGIM Real Estate Asia Retail Fund and Waterway Point in Aug/Sep 2019.
See Frasers Centrepoint Trust Share Price; Frasers Centrepoint Trust Target Price; Frasers Centrepoint Trust Analyst Reports; Frasers Centrepoint Trust Dividend History; Frasers Centrepoint Trust Announcements; Frasers Centrepoint Trust Latest News.
Maintain Frasers Centrepoint Trust as the top pick of the sector. The potential acquisition of assets from PGIM Real Estate Asia Retail Fund will serve as another catalyst. Downside risks includes weak rental reversion.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-09

SGX Stock Analyst Report ADD MAINTAIN ADD 2.89 SAME 2.89