Frasers Centrepoint Trust - CGS-CIMB Research 2021-07-23: Suburban Malls Showing Resilience


Frasers Centrepoint Trust - Suburban Malls Showing Resilience

  • Frasers Centrepoint Trust delivered better occupancy and possibly flat rental reversion in 9MFY21.
  • We expect Frasers Centrepoint Trust to continue to outperform peers, despite challenging outlook.
  • Reiterate ADD with a higher target price as we roll over valuation to FY22F.

Frasers Centrepoint Trust reported stable operating metrics amid pandemic

  • Frasers Centrepoint Trust (SGX:J69U)’s 3QFY21 portfolio occupancy improved 0.3% points q-o-q to 96.1%.
  • Malls which saw notable movements in occupancy were Tampines 1 (+7.3% points q-o-q to 99.2%) and Century Square (-4.8% points q-o-q to 91.6%). Tampines 1 space was filled by Don Don Donki while Century Square was affected by the leasing cycle post a major AEI three years ago.
  • Frasers Centrepoint Trust reported -0.7% rental reversion in 1HFY21; we expect rental reversion for 3QFY21 to remain flattish amid the Phase 2 Heightened Alert (HA).
  • Frasers Centrepoint Trust has substantially de-risked the bulk of leases expiring in FY21, with only 8% of leases to be renewed in 4QFY21. While the leasing environment remains challenging, we understand that most of the remaining expiring leases are in advanced negotiations or preparing documentation.
  • We understand that its top 5 trades (F&B, beauty, healthcare, IT and fashion) which usually make up of 70% of Frasers Centrepoint Trust’s total tenant sales have been trading relatively well in 3QFY21 vs pre-COVID-19 levels (likely low single-digit drops). Due to tightened control measures during Phase 2 HA, Frasers Centrepoint Trust’s tenant sales fell from 94% of pre-COVID-19 level in Apr 21 to 81% in Jun, while shopper traffic dropped from 65% in Apr to 53% in Jun. There were some rental rebates given in 3QFY21, but on a targeted basis.
  • Frasers Centrepoint Trust also assisted less affected tenants in marketing, for example, rather than offering outright rental rebates. We understand there were > 50% of F&B tenants onboard on Frasers Centrepoint Trust’s Makan Master app with order and sales picking up substantially.

AEIs and optimisation value from ARF to drive organic growth

  • Frasers Centrepoint Trust’s current focus is to grow organically via AEIs and optimising the acquisition of ARF (AsiaRetail Fund Limited). We understand that it has planned AEIs for its properties but details have not yet been announced. Acquisition opportunities of prime suburban malls in Singapore are hard to come by given the defensiveness of such malls.
  • One option open to Frasers Centrepoint Trust is to co-own and manage the malls on behalf of existing owners. With its healthy gearing at 33.9% and large debt headroom (S$370m at 40% gearing, S$680m at 45% gearing), Frasers Centrepoint Trust is ever ready for any suitable acquisition that comes along. While Central Plaza (the only office asset in the portfolio) forms an immediate catchment for Tiong Bahru Plaza, we think a Central Plaza divestment could happen with the right offer.

Reiterate ADD with a higher DDM-based target price of S$2.91

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-07-23
SGX Stock Analyst Report ADD MAINTAIN ADD 2.91 UP 2.870