Frasers Centrepoint Trust - Phillip Securities 2019-12-16: Gotta Catch(ment) All

FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - Gotta Catch(ment) All

Resilience in necessity spending, further boosted by larger malls benefiting from the impending increase in catchment population.
Pipeline assets from Sponsor and PGIM ARF assets are near-term growth drivers.
Maintain ACCUMULATE with an unchanged target price of S$3.11.

FRASERS CENTREPOINT TRUST (SGX:J69U) has a market capitalisation of approximately S$3.0bn owns a portfolio of six suburban shopping malls in Singapore and a 40% stake in Waterway Point. Frasers Centrepoint Trust’s sponsor, FRASERS PROPERTY LIMITED (SGX:TQ5), has approximately S$33.2bn of assets across residential, retail, commercial, industrial and hospitality assets classes.
See Frasers Centrepoint Trust Share Price; Frasers Centrepoint Trust Dividend History; Frasers Centrepoint Trust Announcements; Frasers Centrepoint Trust Latest News.

Frasers Centrepoint Trust’s assets located in suburban residential areas are adjacent to transport hubs (MRT stations and bus interchanges). Necessity spending has proven resilient with Frasers Centrepoint Trust’s tenant sales per sqft coming in flat y-o-y (an outperformance compared to the RSI which was negative throughout 2019) despite business disruption due to ongoing works in underground pedestrian links.
Frasers Centrepoint Trust benefitted from the continued upward trajectory of fringe rents – portfolio rental reversions for FY19 was 4.8%, higher than FY18’s 3.2%.

Causeway Point and North Point North Wing will benefit from URA’s draft master plan 2019 - Causeway Point from the repositioning of Woodlands Regional Centre as the largest economic hub and Waterway Point from the addition of business park and university infrastructure aimed at supporting digital economy jobs.
The number of HDB units surrounding Frasers Centrepoint Trust’s three largest malls (Causeway Point, North Point North Wing and Waterway Point) will also increase by 67.6%. The increase in catchment will potentially increase tenant sales and enhance the desirability of the malls, helping to maintain positive rental reversions.

Frasers Centrepoint Trust (24.8%) and Sponsor, Frasers Property Limited (63.1%), have a combined 87.9% stake in PGIM Real Estate AsiaRetail Fund (PGIM ARF), an open-ended fund primarily holding suburban retail assets in Singapore (6) and Malaysia (2). PGIM’s malls bear similar characteristics and yields as Frasers Centrepoint Trust’s assets but 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%. The investment in PGIM ARF was with the intention of acquiring some of PGIM’s assets under the REIT, which will provide higher accretion from the capture of tax savings.

Maintain ACCUMULATE with an unchanged target price of S$3.11. See Frasers Centrepoint Trust Target Price; Frasers Centrepoint Trust Analyst Reports.
Resilience in necessity spending will help to support FY20e 5.5% DPU yield, along with potentially higher variable rents from higher tenant sales as the catchment size increases.
Sizable debt headroom of c.S$500mn (assuming 40% gearing) allows for the acquisition of one to two large-sized malls. With a remaining 12.1% of PGIM ARF left to acquire, we believe that the injection of PGIM ARF assets will materialise in the next 12-18 months.

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2019-12-16

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