Frasers Centrepoint Trust 2QFY20 - UOB Kay Hian 2020-04-24: Weathering Safe Distancing & Circuit Breaker Measures

FRASERS CENTREPOINT TRUST (SGX:J69U) | SGinvestors.io FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust 2QFY20 - Weathering Safe Distancing & Circuit Breaker Measures

  • Frasers Centrepoint Trust reported good results with income available for distribution increasing 25% y-o-y in 2QFY20.
  • Management has adopted a prudent approach to retain 50% of cash, resulting in a 48.7% fall in DPU to 1.61 S cents.
  • Frasers Centrepoint Trust is more resilient due to its focus on suburban retail malls. However, tenants’ sales are expected to fall over the next few months due to safe distancing measures and the circuit breaker period, which has been extended to 1 Jun 20.
  • Maintain HOLD. Target price: S$2.00.
  • Entry price: S$1.82.



Frasers Centrepoint Trust 2QFY20 Results


Steady performance despite COVID-19 pandemic.

  • Frasers Centrepoint Trust's 2QFY20 gross revenue grew by 0.9% y-o-y on rent increase from renewals and step-up rents from existing leases. This was partially offset by lower carpark income (complimentary parking between 22 Feb 20 and 31 Mar 20) and no atrium rental income from Feb 20.
  • Property expenses increased 6.9% y-o-y due to absence of property tax writebacks at Causeway Point, Changi City Point and YewTee Point, which occurred in 2QFY19. Thus, NPI declined 1.3% y-o-y.

Broad-based growth across many malls.

  • Gross revenue from Causeway Point, YewTee Point and Bedok Point grew 1.8%, 2.5% and 8.3% y-o-y respectively. Changi City Point (-0.8% y-o-y) was affected by lower turnover rent, while Anchorpoint (-6.6% y-o-y) saw absence of carpark income after expiry of car park management contract on 30 Nov 19.

Frasers Centrepoint Trust achieved positive rental reversion +5.2% in 1HFY20.

  • All properties recorded positive reversions. Existing tenants renewed at higher rents before the onset of the COVID-19 pandemic in February. Management expects rental reversion to remain positive on average in 2HFY20.

Stable portfolio occupancy of 96.1% (-1.2ppt q-o-q, +0.1ppt y-o-y).

  • Occupancy at Changi City Point dropped 4ppt q-o-q to 91.8% due to two non-renewals and one pre-termination during the quarter. Frasers Centrepoint Trust has renewed expiring leases of all anchor tenants due in FY20.
  • Less than 12% of expiring leases by NLA (14% of Gross Rental Income) remain to be renewed in 2HFY20. 37 of the 152 expiring leases have received commitment for renewals, including 11 tenants at Causeway Point and 14 tenants at Northpoint City North Wing.

Stable occupancy at Waterway Point.

  • Frasers Centrepoint Trust’s share of revenue and NPI in Sapphire Star Trust were S$7.7m and S$6.1m respectively in 2QFY20. Waterway Point (40% stake) achieved healthy occupancy at 96.3% (-1ppt q-o-q).

Gearing stable at 33.3%

  • Gearing stable at 33.3% after repayment of S$90m medium-term notes, which matured on 3 Apr 20. All-in interest cost has improved 13bp q-o-q to 2.44%. 50% of its borrowings are on fixed rates or hedged with interest rate swaps. Interest coverage ratio (ICR) is healthy at 6.4x.
  • Management estimated that NPI has to fall by 73% before debt covenant with minimum ICR at 1.5x is breached.


STOCK IMPACT


Focused on necessity spending at suburban malls.

  • The acquisition of 40% stake in Waterway Point and 24.8% stake in PGIM ARF has reinforced Frasers Centrepoint Trust’s strength in suburban retail malls. Frasers Centrepoint Trust was included in the FTSE EPRA/NAREIT Global Real Estate Index Series (Global Developed Index) since 23 Sep 19.

Smaller malls faring better.

  • Shopper traffic has turned from positive y-o-y growth in January to a mild decline in February and a sharp 9% fall in March. Larger malls, such as Causeway Point and Waterway Point, saw a double-digit fall in March, while smaller malls, such as YewTee Point and Anchorpoint, saw a mid-single-digit fall.
  • Larger malls also saw bigger fall in tenants’ sales of 2-10% y-o-y in February. Shoppers may prefer going to smaller malls, which are less congested. Also, a larger proportion of NLA at smaller malls is devoted to non-discretionary spending (essential services), which remains open.

Only one tenant has requested for rent deferral.

  • Tenants understand that rents deferred would still have to be paid after the Relief Period (deferred but not waived). Management estimated that about 10-15% of tenants are smaller retailers, who may require assistance. The government is offering various loan schemes to help these SMEs tide through this difficult period.

Frasers Centrepoint Trust has extended its Tenant Support Package of S$17m post the Supplementary Budget.

  • These rental rebates will be disbursed to tenants in a targeted manner, prioritised by individual needs and circumstances. Combining the rental rebates, property tax rebates and offsetting of cash security deposit, all tenants will get some form of relief from rental payments for the months of April and May.


EARNINGS REVISION

  • We have conservatively assumed that occupancy at suburban malls will fall to 85% by end-20. We expect gradual recovery and normalisation in occupancy in 2021. We also assumed negative rental reversion of 20% for retail malls for the full-year 2020.
  • We have lowered our FY20 DPU forecast by 2.2% to 9.47 S cents due to cash retained in 2QFY20. We have assumed that Frasers Centrepoint Trust will distribute out S$8m of cash retained in 4QFY20.


RECOMMENDATION


Maintain HOLD.



SHARE PRICE CATALYST

  • Cessation of relief period and circuit breaker period.





Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2020-04-24
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.00 UP 1.550



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