Frasers Centrepoint Trust - CGS-CIMB Research 2021-04-23: Stable Performance Despite COVID-19

FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - Stable Performance Despite Covid-19

Frasers Centrepoint Trust’s 1HFY21 DPU of ~S$0.06 came in at 47% of our FY21F DPU.
Despite COVID-19, operating metrics remained relatively stable.
Reiterate ADD. Continuous outperformance vs peers could re-rate the stock.

Frasers Centrepoint Trust (SGX:J69U)’s 1HFY21 (Oct 2020 to Mar 2021) DPU of S$0.05996 (+28.4% y-o-y, including the S$0.00132 DPU accrued prior to the issuance of new units on 7 Oct 2020 due to equity fund raising) came in at 47% our FY21F DPU.
Both 1HFY21 revenue and NPI grew 73.8% y-o-y to S$173.6m and S$125.7m, respectively, boosted by the acquisition of ARF which was completed on 27 Oct 2020 (5 months of contribution in 1HFY21). Excluding the effect of the acquisition, Frasers Centrepoint Trust's revenue and NPI would have declined by ~4% and 5% y-o-y, respectively, which we believe was due to weaker rental reversions, absence of atrium sales as well as rental rebates given out to certain tenants.

Frasers Centrepoint Trust's portfolio occupancy remained high at 96% in 1HFY21 vs 96.4% in 1QFY21.
Despite COVID-19, Frasers Centrepoint Trust achieved average rental reversion of -0.7% (based on new methodology of average rent of incoming leases vs that of expiring leases). Rental reversion would have been +2.9% if based on previous methodology of average rental rates between new lease and the preceding lease (average to average), thanks to its focus on suburban malls. The flattish rental reversion is in line with the broader market rental rate of suburban malls in Singapore.
While shopper traffic recovery was capped at 60-70% of pre-COVID-19 levels due to safe distancing measures, tenant sales recovery continued to gain traction (+0.4% to +11.7% y-o-y in Jan and Feb 2021).
Frasers Centrepoint Trust renewed ~50% of FY21 expiring leases by gross rental income and has 20% of leases left to be renewed in FY21. Frasers Centrepoint Trust does not see any significant vacancy risk. It also does not see significant financial impact from the introduction of Code of Conduct from 1 June 2021.

The disposal of Yew Tee Point (disposal price S$220m, exit yield 3.8%) will be completed on 28 May 2021. Yew Tee Point is Frasers Centrepoint Trust’s last smaller asset ( < 85k sf). This is in line with the REIT’s strategy to divest smaller assets and refocus on larger assets.
Going forward, at 35.2% gearing, Frasers Centrepoint Trust has large ample debt headroom for acquisitions. In addition to its sponsor’s assets, we understand that there are still quality individual suburban malls in Singapore which Frasers Centrepoint Trust could look to acquire.

We lower our FY21-23F DPU forecast for Frasers Centrepoint Trust by 3-5% after factoring in the divestment of Yew Tee Point and smaller-than-expected contribution from ARF acquisition. Faster recovery vs peers could help to re-rate the stock.
Reiterate Add.
See
Upside/downside risks: faster/slower-than-expected recovery from COVID-19.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-23

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