Frasers Centrepoint Trust - CGS-CIMB Research 2020-07-24: Some Impact From COVID-19

FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - Some Impact From COVID-19

Frasers Centrepoint Trust's 3QFY20 occupancy dipped 1.5% pts q-o-q to 94.6%. 3Q rental reversion was a slight positive. Traffic has recovered to 61% of year-ago level in Jul.
We expect Frasers Centrepoint Trust to be more resilient than its peers. Reiterate ADD.

Frasers Centrepoint Trust (SGX:J69U) released its 3QFY20 business updates yesterday. Portfolio occupancy as at end- Jun 2020 was 94.6%, down 1.5% pts q-o-q. Lower occupancy rates were observed across all assets. While management expects it could take longer to fill up vacancies, it continues to see interest for them.
Despite the difficulties the F&B sector went through in the past few months, Frasers Centrepoint Trust is still seeing strong space demand from this sector. The number of its tenants asking for rental relief and pre-termination are minimal.

Frasers Centrepoint Trust's 1HFY20 portfolio rental reversion was +5.2%. While no rental reversion was disclosed for 3Q, we understand that FCT still posted a slight positive rental reversion, partially driven by some pre-committed leases before the outbreak of COVID-19.
Frasers Centrepoint Trust has 4.8% leases remaining to renew in FY20. Management expects this to be renewed at a slight negative/positive reversion. The REIT has 28.8% (by net lettable area, NLA) of expiring leases to be renewed in FY21.
We assume a flat average rental reversion and occupancy for FY21F as we expect traffic to recover more substantially towards end-2020F and 2021F, and given the strategic locations of its suburban malls. We see a shorter WALE, as more leases would likely be renewed on a short-term basis due to the uncertainties.

For the week ended 12 Jul, Frasers Centrepoint Trust's shopper traffic has recovered to 61% of year-ago's traffic; recovery was limited by safe distancing and traffic limit measures. In fact, Frasers Centrepoint Trust’s traffic was only hit hard in early-Apr when Singapore entered into the circuit breaker period which forced it to close a large part of its malls.
The portfolio of associate PGIM Real Estate AsiaRetail Fund (top malls: Tampines, Hougang and Whitesands) displayed similar characteristics as Frasers Centrepoint Trust’s malls in terms of traffic recovery and resilience.
Frasers Centrepoint Trust expects its asset valuation to be relatively stable.

Management was pleasantly surprise with Frasers Centrepoint Trust’s performance -- traffic recovery was better than expected and the number of essential tenants at its mall was higher than expected.
Frasers Centrepoint Trust expects stronger sales once the situation normalises as tenants have embarked on online sales and cost efficiency initiatives. It has disbursed S$25m (~1.5 mths) of rental rebates and fulfilled the mandated rental rebates for SMEs. Further assistance will be on a targeted basis.
We lift FY21-22F DPU by 0.4-0.6% to factor in the acquisition of an additional 12.07% stake in PGIM. Reiterate ADD with a higher Target Price upon roll-over to FY21F and as we reduce our COE to reflect the better-than-expected outlook.
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.
Potential re-rating catalyst: accretive acquisitions.
Downside risk: weaker rental rates.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-24

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