Frasers Centrepoint Trust - CGS-CIMB Research 2020-11-03: Warding Off COVID-19 Impact


Frasers Centrepoint Trust - Warding Off COVID-19 Impact

  • Frasers Centrepoint Trust's FY20 DPU of 9.042 cents was below expectations as we had underestimated its expenses. 2HFY20 NPI growth excluding rental waivers was -2.2%
  • Although we expect rental pressure in FY21F, Frasers Centrepoint Trust should fare better than its peers due to its more resilient tenant sales.
  • Reiterate ADD at a higher DDM-based Target Price of S$2.89.

FY20 revenue and NPI impacted by rental waivers

  • Frasers Centrepoint Trust (SGX:J69U)’s FY20 DPU of 9.042 cents came in below our expectations at 90.5% of our full-year forecast as we had underestimated its operating and interest expenses. Frasers Centrepoint Trust released S$18m of the income retained from 1H20.
  • Frasers Centrepoint Trust's 2HFY20 revenue and NPI declined 33.8% and 43.8% y-o-y, respectively, mainly due to rental rebate assistance granted to tenants. Excluding rental relief, 2HFY20 revenue declined 5.7% y-o-y, while NPI declined 2.2% y-o-y.
  • On a full year basis, revenue and NPI dropped 16.3% and 20.4% y-o-y mainly due to rental rebates. Although net income fell 32.3% y-o-y to S$65.4m, income available for distribution declined to a lesser extent at 14.8% due to full year contributions of dividend received from Frasers Centrepoint Trust’s investments Waterway Point and ARF.

Tenant sales have recovered to almost pre-COVID-19 levels

  • Frasers Centrepoint Trust's portfolio occupancy remained high at 94.9% in Sep 20 versus 94.6% as at Jun 20. Monthly tenant sales recovered to 94-97% of pre-COVID-19 levels in Jul-Sep 20. Shopper traffic however recovered at a slower rate to c.60% of pre-COVID-19 levels in Jul-Sep 20.
  • Frasers Centrepoint Trust achieved +1.9% rental reversions in 2HFY20 and +4.2% in FY20, thanks to its advanced negotiation strategy. Frasers Centrepoint Trust has 32.6% of GRI leases up for renewal in FY21F and Frasers Centrepoint Trust has renewed 20% of it at an average of negative to neutral rental reversion, which is still encouraging given the weak trading environment.

Expect traffic to improve going forward

  • Festive and holiday seasons at the year-end would support a further recovery in shopper traffic and tenant sales. The gradual return of the office crowd next year would also help to improve traffic as its malls are mainly located near the transportation nodes. This should support recovery of rental reversion going forward.
  • While rental pressure is inevitable in the near term, we expect Frasers Centrepoint Trust to fare better than its downtown mall peers due to its lower reliance on tourists and its higher proportion of essential trades. Instead of rental rebates, Frasers Centrepoint Trust will be looking at more on marketing activities to boost sales.

Reiterate ADD with a higher target price of S$2.89

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-03
SGX Stock Analyst Report ADD MAINTAIN ADD 2.89 UP 2.830