FRASERS CENTREPOINT TRUST (SGX:J69U)
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
- Frasers Centrepoint Trust has been actively reconstituting its portfolio via capital recycling which augurs well for its positioning and longer-term sustainability. Besides the acquisition of the ARF portfolio, management had divested Bedok Point and more recently proposed to sell its Anchorpoint asset, both of which were underperformers within its portfolio, in our view. In other words, we believe the quality of Frasers Centrepoint Trust’s portfolio has improved significantly following this portfolio optimisation exercise.
- 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 lower our Frasers Centrepoint Trust's FY21F and FY22F DPU forecasts marginally by 0.3% and 0.4%, respectively, to take into account the loss of income from the Anchorpoint divestment (but partially offset by lower interest costs from repayment of debt). However, we are raising our fair value estimate from S$2.75 to S$2.95 as we apply a lower cost of equity assumption of 5.9% (-0.3 ppt) given more visible signs of a recovery in the global economy and retail sector, especially within the suburban market.
- Near-term risks to our forecasts include the possibility of new restrictions and safeguards being imposed by the Singapore government as the number of COVID-19 community cases has recently inched up.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2021-01-25
SGX Stock
Analyst Report
2.950
UP
2.750
