Frasers Centrepoint Trust - DBS Research 2020-11-04: Back In The Groove

FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - Back In The Groove

Frasers Centrepoint Trust's distributions to rise past pre-COVID levels with PGIM acquisition in FY21
Operational metrics stable; a majority of tenant trades showing promise with minimal further assistance expected
Phase 3 reopening to further boost tenants’ sales
Worst potentially over, Frasers Centrepoint Trust's target price raised to S$3.00

Frasers Centrepoint Trust (SGX:J69U)'s gross revenue and NPI for full-year 2020 was S$164.38m (-16% y-o-y) and S$110.89m (-20.4% y-o-y) respectively.
Excluding the rental relief of S$27.4m provided to tenants this year, decline in revenue and NPI would have narrowed at -2.4% and -0.7% respectively, mainly due to the loss in ancillary income (i.e. car park and atrium space rental).
Correspondingly, Frasers Centrepoint Trust's distributable income declined 15% y-o-y to S$101.1m, while distribution for FY20 declined 25% to 9.042 cents.

Occupancy rate increased marginally q-o-q to c.94.9%, mainly from better take-up rates at Yew Tee Point (c.97.1%) and Waterway Point (c.96.0%) which more than offset the slight drop in occupancies at Northpoint City North Wing and Causeway Point.
Rental reversion for FY20 was a positive c.4.2% (average growth in rental rates between new and expiring leases) but if we compare expiring to new rental rates, this would have been flattish.

Tenant retail sales have rebounded close to pre- COVID-19 levels, contracting by only 3.0% y-o-y in 4QFY20, while shopper traffic was c.38% lower y-o-y. We understand that most retailers, except a few family karaoke and travel agencies (c.1% of revenues), have resumed business.
Retailers within the essential service trade, which is a majority of the tenant trades with Frasers Centrepoint Trust mall, continue to do well while its department store operator – Metro is seeing stable operational metrics.
We understand that c.20% of the tenants are currently seeing operational statistics at 20% below pre-COVID-19 levels and may need additional assistance. The manager is looking to assist through active marketing and promotion to boost tenant sales rather than offering further rebates.
The continued reopening the Singapore economy into phases 3 is positive for operating metrics. We anticipate the resumption of atrium sales and potentially bigger group sizes (from 5 pax to 8 pax) to drive consumption, especially for the food & beverage (F&B) sector.

With the completion of the acquisition of PGIM portfolio and planned sale of Bedok Point, we see a c.6% increase in Frasers Centrepoint Trust's DPU for FY21 vs pre-COVID-19 DPU of 12.1 cents. This is mainly driven from the anticipated higher leverage taken to fund the acquisition, coupled with the unwinding of the private fund into a tax transparent structure.
Our target price for Frasers Centrepoint Trust is raised to S$3.00 with a target yield of 4.5%.
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.

Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-11-04

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