Frasers Centrepoint Trust - DBS Research 2021-07-26: Portfolio De-risking In The Face Of Headwinds


Frasers Centrepoint Trust - Portfolio De-risking In The Face Of Headwinds

  • Frasers Centrepoint Trust's portfolio occupancy stable at 96.4% with a strong hold on anchor tenants; Crowd magnet Don Don Donki onboarded as new anchor at Tampines One.
  • Shopper traffic at ~55% and tenant sales at ~85% of normalised levels across Phase 2 HA months.
  • Rental reversion flattish for the quarter, rebates likely in the range of 0.5 month’s worth.

Frasers Centrepoint Trust's 3Q21 operational update

Portfolio occupancy stable at 96.4%

  • Frasers Centrepoint Trust (SGX:J69U)'s portfolio occupancy for 3Q21 was stable at 96.4%, representing a 30bps improvement q-o-q.
  • The best performing malls include Tampines one (+7.3% q-o-q to 99.2%), Northpoint City (+1.8% q-o-q) and Waterway Point (+1.6% q-o-q)
  • Rental reversion was flat this quarter with rental relief assistance provided to tenants that will likely be capped within 0.5 month’s worth of rebates.
  • Renewed substantial expiring leases due in FY2021, with only 8% remaining to renew in 4Q21
  • Many of the leases up for renewal is concentrated in Century Square as the leasing cycle rounds up post AEI completion three years ago.

Operational hiccups persist with Phase 2 HA and flat rental reversions this quarter

  • Phase 2 heightened alert (HA) which happened between mid-May and mid-June has affected both shopper traffic and tenant sales.
  • Shopper traffic for the quarter fell to around 60% of the pre-COVID level, impacted by May and June traffic which was near half of the pre-COVID levels.
  • Tenant sales sustained a lower-than-expected impact, between 81% and 88% of the pre-COVID levels across May / June.
  • Including the PGIM portfolio, Frasers Centrepoint Trust’s retail portfolio has a 45% (by NLA) and 54% (by GRI) exposure to essential service trade categories
  • Top five trade categories with a 70% portfolio exposure held up strong in the past quarter (most limited to a single-digit decline in revenue).
  • Frasers Centrepoint Trust continued to see a strong hold on anchor tenants with no major risk of exits.
  • Sector headwind persists given the emergence of COVID-19 clusters going into 4Q21 (Jun – Sep) with operational hiccups likely to persist to end-FY21 (Sep’21).
  • Half of retailers are currently onboard Makan master (Frasers online platform) which saw sales and order count increasing five and four folds respectively, providing an alternative to physical sales.
  • Half of retailers are currently onboard Makan master (Frasers online platform) which saw sales and order count increasing five and four folds respectively, providing an alternative to physical sales.

Financial metrices continues to see steady recovery

  • Gearing level at 33.9%, post completion of Yewtee Point divestment (28 May’21)
  • Average cost of debt was flat q-o-q at 2.2%, interest cover continues to see steady improvement to 5.2x this quarter.
  • Tax transparency for Century Square still underway, expected cost savings of about S$1.68m per annum upon approval.

Reconfiguration of H&M vacancy, new anchor tenant at Tampines One

  • Frasers Centrepoint Trust secured Don Don Donki as a new anchor tenant at Tampines One, where occupancy rose 7.3% q-o-q.
  • Don Don Donki is new to the Tampines precinct and has proven to have the strong ability to draw shopper footfall.
  • H&M’s vacated space at Waterway Point has been subsequently divided into smaller plots.
  • Approximately 75% of NLA vacated by H&M has been committed to Toys”R”us (relocation from basement) and tenants within the F&B / discretionary fashion sectors.

Central Plaza the next divestment target?

  • Following the divestment of three non-core malls, Frasers Centrepoint Trust will be open to divesting Central Plaza.
  • Central Plaza is part of a mixed development and linked to Tiong Bahru Plaza and is the only non-retail component in the portfolio.

Maintain BUY with unchanged target price of S$3.00.

Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2021-07-26
SGX Stock Analyst Report BUY MAINTAIN BUY 3.000 SAME 3.000