Frasers Centrepoint Trust - CGS-CIMB Research 2021-01-22: An Encouraging Quarter Amidst Uncertainties


Frasers Centrepoint Trust - An Encouraging Quarter Amidst Uncertainties

  • Frasers Centrepoint Trust's overall better occupancy q-o-q and flattish rental reversion in 1QFY21 were encouraging. Tenant sales remained stable at close to pre-COVID-19 levels.
  • Leasing discussions a challenge, but Frasers Centrepoint Trust sees no major issues in renewing.
  • Reiterate ADD on Frasers Centrepoint Trust with a higher target price as we reduce our COE assumption.

Occupancy improved q-o-q; rental reversion relatively flat

  • Frasers Centrepoint Trust (SGX:J69U)’s portfolio occupancy remained high at 96.4% in 1QFY21. With the exception of YewTee Point which saw occupancy declined 1.5% points to 95.6%, occupancy improved across all its assets (up 0.1-5.9% points q-o-q) to 90.7-98.7%.
  • In addition to the stronger occupancy, we understand that 1QFY21 rental reversion came in relatively flat which is encouraging. Frasers Centrepoint Trust renewed 25% of its leases in 1QFY21; it has ~30% of lease expiries remaining to be renewed in FY21. Malls with a larger portion of expiries are Tampines 1 (40.7% of GRI), Century Square (68.7% of GRI), and Hougang Mall (53% of GRI).
  • While the leasing environment remains challenging as retail recovery remains uncertain, management does not see major renewal issues as tenants are trading well. Leasing terms remain largely the same as pre-COVID-19, with only a small portion of shorter term leases. 1-2 tenants have requested negotiations under the realignment framework.

Tenant sales recovery sustained at near pre-COVID-19 level.

  • In 1QFY21, shopper traffic remained at 60-70% of pre-Covid levels as safe distancing and mall capacity control measures stayed in force. Total tenant sales remained stable at near pre-COVID-19 levels (-1.8% to +1.5% y-o-y in Oct-Dec 2020) with recovery partially capped by large scale marketing activities limitation due to control measures.
  • Trades which have been doing better are supermarket, healthcare, luxury, electronics and home furnishing. Polarisation was seen in the F&B and fashion sectors in 1Q.
  • We expect gradual recovery in shopper traffic as capacity eases and as office crowd returns, supporting tenant sales post the year-end festive season.

Divesting smaller malls; focus on larger malls

  • Frasers Centrepoint Trust recently divested its smaller mall Bedok Point at a good 2-2.5% NPI yield (based on FY19/20 NPI) and is in the midst of divesting Anchor Point at 2.7-3.5% NPI yield (based on FY19/20 NPI), to be completed on 22 Mar 2021. Given its now larger asset under management (AUM), Frasers Centrepoint Trust’s strategy is to focus on larger malls (more than 120k sf).

Reiterate ADD with a higher DDM-based target price of S$3.01

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-22
SGX Stock Analyst Report ADD MAINTAIN ADD 3.01 UP 2.890