FRASERS CENTREPOINT TRUST (SGX:J69U)
Frasers Centrepoint Trust 1HFY21 - Maintaining Resiliency; Increasing Dominance & Scale
- Frasers Centrepoint Trust's 1HFY21 DPU grew a whopping 28.4% y-o-y with five months of contributions from ARF as a wholly-owned subsidiary. Retail occupancy was stable at 96.1%. Rental reversions were flattish.
- Frasers Centrepoint Trust has divested Bedok Point, Anchorpoint and YewTee Point in reconstitution to refocus on larger and dominant suburban malls. The potential acquisition of Northpoint City South Wing could be the next catalyst.
- BUY Frasers Centrepoint Trust for a defensive distribution yield of 5.4% for FY22. Target price: S$3.06.
Frasers Centrepoint Trust's 1HFY21 Results
- Frasers Centrepoint Trust (SGX:J69U) reported DPU of 5.996 cents for 1HFY21, up 28.4% y-o-y. The results were in line with expectations. This is the first set of results after Frasers Centrepoint Trust completed the acquisition of the remaining 63.1% stake of AsiaRetail Fund (ARF) on 27 Oct 20 (five months of contributions from ARF during 1HFY21).
Results incorporate five months of contributions from ARF.
- Retail occupancy was stable at 96.1% (1QFY21: 96.4%). Occupancies were
- 99.3% at Causeway Point (+1.5ppt q-o-q),
- 94.7% at Changi City Point (+4ppt q-o-q),
- 96.4% at Century Square (+2.3ppt q-o-q) and
- 99.3% at Hougang Mall (+3.7ppt q-o-q).
- Century Square and Hougang Mall benefitted from new incoming tenants. The five suburban malls and one office building from ARF contributed 47% of gross revenue in 1HFY21.
Recovery in tenant sales supported by COVID-19 vaccination and reopening.
- Tenant sales expanded by 0.4% y-o-y in Jan 21 and 11.7% y-o-y in Feb 21, attesting to the resiliency of suburban malls. Growth of Frasers Centrepoint Trust’s tenant sales has outpaced the broader Singapore retail sales. 1HFY21 performance was partially held back by absence of atrium rental revenue due to safe distancing measures and divestment of Bedok Point.
Reversion in negative territory due to technicality.
- Frasers Centrepoint Trust’s suburban malls registered mild negative rental reversion of 0.7%. The average lease tenure is three years, which incorporates lower rents in the first year and step-up towards market rents in the second and third year. Frasers Centrepoint Trust would have achieved positive rental reversion of 2.9% if reversion was calculated based on average rents over the lease term of three years.
Engaging tenants early on lease renewal.
- Leases representing 19.8% of total NLA and 20% of gross rental income will expire during 2HFY21. Century Square, Hougang Mall and Tampines 1 accounted for 52% of the leases expiring. Management is confident of renewing leases with anchor tenants providing essential services that are doing well. Dialogue with anchor tenants have commenced and are in advanced negotiations.
Deleveraging through divestment of Anchorpoint.
- Frasers Centrepoint Trust's aggregate leverage is low at 35.2%, lower by 2.5ppt q-o-q due to completion of divestment of Anchorpoint for S$110m on 22 Mar 21.
- Frasers Centrepoint Trust’s all-in average cost of borrowings was unchanged at 2.2%.
STOCK IMPACT
Portfolio reconstitution to refocus on larger and dominant suburban malls.
- Frasers Centrepoint Trust has entered into agreement to sell YewTee Point to an unrelated third party for S$220m. Frasers Centrepoint Trust would be able to recognise divestment gain of S$29.9m upon completion of the transaction, which is expected on 28 May 21.
- Together with earlier divestments of Bedok Point and Anchorpoint, Frasers Centrepoint Trust has divested a total of three sub-scale suburban malls for total proceeds of S$438m. The reconstitution enhances resiliency from dominant suburban malls and improves overall cost efficiency.
Ready to pounce on the next acquisition when opportunity arises.
- The divestments of smaller suburban malls create room on Frasers Centrepoint Trust’s balance sheet to prepare for the potential acquisitions. It could tap on its sponsor pipeline, such as Northpoint City South Wing. It will also explore opportunities for acquisitions from third-party vendors, such as the remaining int. With low aggregate leverage of 35.2%, Frasers Centrepoint Trust has the financial capacity to pursue more acquisitions.
EARNINGS REVISION/ RISK
- We trimmed our FY22F DPU forecast of Frasers Centrepoint Trust marginally by 3% due to divestment of Anchorpoint and YewTee Point.
VALUATION/ RECOMMENDATION
- Maintain BUY on Frasers Centrepoint Trust. Our target price of S$3.06 is based on the dividend discount model (cost of equity: 6.0%, terminal growth: 1.8%).
- See
SHARE PRICE CATALYST
- Gradual but steady recovery in shopper traffic and tenant sales, accompanied by progressive easing of social distancing measures.
- Acquisition of Northpoint City South Wing from sponsor Frasers Property.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-04-26
SGX Stock
Analyst Report
3.06
DOWN
3.180
