Frasers Centrepoint Trust - OCBC Investment 2021-01-25: Recovery Continues To Gain Traction


Frasers Centrepoint Trust - Recovery Continues To Gain Traction

  • Occupancy improved q-o-q while tenants’ sales close to pre-COVID-19 levels.
  • Capital recycling to strengthen portfolio positioning.
  • Raising Frasers Centrepoint Trust's fair value to S$2.95.

Frasers Centrepoint Trust's 1QFY21 business update reflects continued recovery

  • Frasers Centrepoint Trust (SGX:J69U) provided a business update for 1QFY21. Overall performance was resilient. Its retail portfolio occupancy improved by 1.5 ppt q-o-q to 96.4%. All its malls, with the exception of YewTee Point, registered an increase in occupancy.
  • A breakdown of rental reversions by mall was not disclosed, but management said that this was relatively flat for the portfolio in 1QFY21. Although 39.6% of its leases (by gross rental income) are expiring in FY21, Frasers Centrepoint Trust had already renewed approximately one-quarter of this. Hence it is left with 29.6% of leases to work on for the remainder of the financial year.
  • The operating environment remains challenging, and tenants are taking a longer time before committing to renewals. That said, we believe Frasers Centrepoint Trust has a strong competitive advantage given its focus on suburban retail, with essential trade categories forming a sizeable portion of its portfolio.

Tenants’ sales almost back to pre-pandemic levels

  • For Frasers Centrepoint Trust’s tenants’ sales, growth was -1.8%, +1.5% and -1.3% y-o-y for the months of Oct, Nov and Dec 2020, respectively. To put things in perspective, Singapore’s retail sales excluding motor vehicles fell 2.9% y-o-y in Nov.
  • Headline footfall figures remain underwhelming, with y-o-y declines of 38.4%, 36.2% and 31.5% in Oct, Nov and Dec 2020, respectively. However, the sharp divergence between tenants’ sales and shopper traffic performance is largely due to the fact that most of Frasers Centrepoint Trust’s malls are transit points to transport nodes and thus affected by working from home trends. Much of this daily traffic could be transient in nature when people commute to work via public transport.

Portfolio reconstitution augurs well for positioning and longer-term sustainability

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-01-25
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