FRASERS CENTREPOINT TRUST (SGX:J69U)
Frasers Centrepoint Trust - 3QFY21 Normalisation Of Domestic Consumption In Progress
- Retail occupancy improved 0.3ppt q-o-q to 96.4% while rental reversions were flat in 3QFY21. Tenant sales were 88% of pre-COVID-19 levels despite Phase 2 (Heightened Alert), attesting to the resiliency of Frasers Centrepoint Trust (SGX:J69U)’s suburban malls.
- Frasers Centrepoint Trust divested Bedok Point, Anchorpoint and YewTee Point to refocus on dominant suburban malls. Having reduced aggregate leverage to 33.9%, Frasers Centrepoint Trust is well positioned to pursue acquisitions.
- Maintain BUY on Frasers Centrepoint Trust for defensive distribution yield of 5.5% for FY22F. Target price: S$3.06.
Frasers Centrepoint Trust (FCT) provided 3QFY21 business update:
- Occupancy edges higher. Retail occupancy improved slightly by 0.3ppt q-o-q to 96.4%. Committed occupancy for Tampines 1 improved 7.3ppt q-o-q to 99.2% due to the addition of Don Don Donki as mini-anchor. Committed occupancy for Century Square dropped 4.8ppt to 91.6% due to bunching up of lease expiries caused by AEI completed three years ago. At Waterway Point, 75% of NLA vacated by H&M was reconfigured and backfilled by smaller specialty shops, such as Häagen-Dazs, Levi, YISHION (fashion brand), Gram Cafe & Pancakes and Toys R Us.
- Tenant sales resilient despite Phase 2 (Heightened Alert). Shopper traffic fell to 58% of pre-COVID-19 levels in 3QFY21 due to Phase 2 (Heightened Alert). Tenant sales were 88% of pre-COVID-19 levels, attesting to the resiliency of Frasers Centrepoint Trust’s suburban malls. Growth of Frasers Centrepoint Trust’s tenant sales has outpaced the broader Singapore retail sales.
- Target to maintain rental reversion flat. Rental reversion is flat, which is a mild improvement from mild negative rental reversion of 0.7% in 2QFY21. Frasers Centrepoint Trust has substantially renewed expiring leases due in FY21. Leases expiring in 4QFY21 accounted for only 8.2% of gross rental income (Sep 20: 39.8%).
- Deleveraging through divestment of YewTee Point. Aggregate leverage was lowered by 1.3ppt q-o-q to 33.9% due to completion of the divestment of YewTee Point for S$220m on 28 May 21. Frasers Centrepoint Trust’s all-in average cost of borrowings was unchanged at 2.2%.
STOCK IMPACT
- Defensive yield from necessity consumption. Frasers Centrepoint Trust's suburban malls are well located with connectivity to MRT stations and bus interchanges, close proximity to dense population catchments and cater to essential services and non-discretionary spending. Frasers Centrepoint Trust will explore AEI opportunities to generate organic growth. It is also on the lookout for acquisitions within Singapore.
- A temporary setback. The multi-ministry taskforce has tightened community safe management measures back to Phase 2 (Heightened Alert) from 22 July to 18 August. The permissible group size for social gatherings was reduced from five to two persons. F&B establishments can only provide takeaway and delivery options. Operating capacity for shopping malls was reduced from 10sqm to 16sqm of gross floor area per person.
- Social distancing measures could be substantially eased by October. Sporadic lockdowns are detrimental to economic recovery. Instead of trying to eradicate COVID-19, we have to learn to live with it. In the US, the states of California and New York have dropped all social distancing measures when vaccination rates crossed 70%. In Singapore, the government has set a new target whereby 75% of the population will be fully vaccinated by October. Achieving the important milestone could pave the way for social distancing measures to be substantially eased.
- Completed reconstitution to refocus on larger and dominant suburban malls. Frasers Centrepoint Trust has divested three sub-scale suburban malls, namely Bedok Point (completion: 9 Nov 20), Anchorpoint (completion: 22 Mar 21) and YewTee Point (completion: 28 May 21), 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 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 60% stake in Waterway Point. With low aggregate leverage of 33.9%, Frasers Centrepoint Trust has the financial capacity to pursue more acquisitions.
EARNINGS REVISION/RISK
- We maintained our existing DPU forecast.
VALUATION/RECOMMENDATION
- Maintain BUY. Our target price of S$3.06 is based on DDM (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/
2021-07-26
SGX Stock
Analyst Report
3.060
SAME
3.060
