FRASERS CENTREPOINT TRUST (SGX:J69U)
Frasers Centrepoint Trust - Tough Operating Environment But Look Forward To Inorganic Growth
- ~S$25m of rental rebates from Frasers Centrepoint Trust provided.
- Occupancy -1.5 ppt q-o-q to 94.6% and could worsen ahead.
- Additional stake increase in PGIM ARF.
Frasers Centrepoint Trust's 3QFY20 business updates
- Frasers Centrepoint Trust (SGX:J69U) provided a business update for 3QFY20. No financial figures were given.
- On the operational front, more than 95% of its tenants have resumed business after the start of Phase 2 on 19 Jun 2020. Overall shopper traffic has recovered to ~50% of last year’s level in Jun with safe distancing and capacity limits still in place. This recovery momentum has continued, as the week of 12 Jul saw a smaller magnitude decline in shopper traffic by 38.9% y-o-y.
- Management highlighted that it has disbursed ~ S$25m in landlord’s rental rebates to its tenants to-date and has already compiled with the government’s mandatory requirement of rental relief under the COVID-19 (Temporary Measures) (Amendment) Act.
- Approximately 55% of Frasers Centrepoint Trust’s tenant base are SMEs.
Drop in occupancy some cause for concern
- Frasers Centrepoint Trust’s portfolio occupancy stood at 94.6%, as at 30 Jun 2020, with all of its malls experiencing an increase in vacancy rates on a q-o-q basis even though it did not have a significant proportion of leases which were expiring in 2HFY20.
- From our understanding, there were some pre-termination of leases. Given that tenants are supported during this period with rental relief from the landlord and government, the dip in occupancy, although only by 1.5 ppt q-o-q, comes as a slight concern for us given that the situation may deteriorate ahead once the temporary relief measures taper off.
- That said, we still like Frasers Centrepoint Trust’s suburban malls’ positioning and expect resiliency relative to the market although some weakness is expected given the subdued macroeconomic conditions.
Market looking forward to acquisition of PGIM ARF assets
- Frasers Centrepoint Trust’s gearing ratio stood at 35% as at 30 Jun 2020. This would have crept up given that it completed the acquisition of an additional 12.07% interest in PGIM Real Estate AsiaRetail Fund Limited (ARF) for S$197.2m on 6 Jul. Following this acquisition, Frasers Centrepoint Trust now holds a 36.9% interest in ARF, with its sponsor Frasers Property (SGX:TQ5) holding the remaining 63.1%. Hence, we believe the market is looking forward to Frasers Centrepoint Trust’s direct acquisition of the suburban retail properties under ARF.
- Besides the obvious strategic fit to Frasers Centrepoint Trust’s portfolio, this would also eliminate the issue of double layer of management fees and taxation expenses and thus drive unitholder value over the medium to longer term. However, this acquisition is unlikely to come cheap if we draw reference from Northpoint City South Wing’s recent transaction price (~S$3,785 psf) and valuation exercise for CapitaLand Mall Trust (SGX:C38U)’s suburban malls (valuation only fell low single digit in percentage terms).
- 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.
- We factor in Frasers Centrepoint Trust’s additional stake acquisition in ARF, and also lower our cost of equity assumption by 0.4 ppt to 6.2%. Consequently, our fair value estimate increases from S$2.22 to S$2.44.
Andy Wong CFA
OCBC Investment Research
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https://www.iocbc.com/
2020-07-27
SGX Stock
Analyst Report
2.44
DOWN
3.070
