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Frasers Centrepoint Trust - UOB Kay Hian 2021-10-28: 2HFY21 Deleveraged And Ready To Pounce

FRASERS CENTREPOINT TRUST (SGX:J69U) | SGinvestors.io FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - 2HFY21 Deleveraged And Ready To Pounce

  • Frasers Centrepoint Trust (SGX:J69U)’s retail occupancy improved 0.9ppt q-o-q to 97.3% in 4QFY21 while rental reversions were mildly negative at 0.6% in FY21. Tenant sales recovered to 98% of pre-COVID-19 levels in September.
  • Frasers Centrepoint Trust divested of Bedok Point, Anchorpoint and YewTee Point to refocus on dominant suburban malls. It is well positioned to pursue acquisitions after lowering aggregate leverage to 33.3% as of end-Sep 21.
  • Maintain BUY for its defensive distribution yield of 5.6% for FY22. Target price: S$2.98.



Frasers Centrepoint Trust (FCT) reported DPU of 6.089 cents for 2HFY21, up 39.3% y-o-y.

  • The results reflected full six-month contributions from the acquisition of the remaining 63.1% stake of AsiaRetail Fund (ARF), which was completed on 27 Oct 20.
  • Occupancy edges higher. Retail occupancy improved slightly by 0.9ppt q-o-q to 97.3% in 4QFY21. The sequential improvement was led by Causeway Point, Tiong Bahru Plaza and Waterway Point (40% stake) where occupancy improved 0.5ppt, 2.0ppt and 4.6ppt respectively to 98.6%, 98.3% and 98.4%. At Waterway Point, retail space 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 tracking close to pre-COVID-19 levels. Shopper traffic was about 60% of pre-COVID-19 levels in 4QFY21. Group size for dining in at F&B outlets was eased from two to five vaccinated persons on 10 Aug 21. Thereafter, tenant sales improved from 93% in August to 98% of pre-COVID-19 levels in September. Sales from trade sectors remain uneven. Jewellery and watches are the best performing. Education, supermarkets & grocers and sports apparel & equipment also registered positive y-o-y growth.
  • Majority of suburban malls registered mild positive reversions. Rental reversion was mild negative 0.6% in FY21. White Sands, Waterway Point, Tiong Bahru Plaza and Causeway Point achieved positive rental reversions of 2.5%, 1.3%, 0.8% and 0.6% respectively. Changi City Point suffered a severe negative rental reversion of 9.8% due to the drop in footfall from Changi Business Park and Singapore Expo. Leases expiring in FY22 accounted for a sizeable 38.7% of total NLA and 35.6% of gross rental income.
  • Deleverage through divestment of sub-scale suburban malls. Frasers Centrepoint Trust has repaid S$220m of borrowings with proceeds from the divestment of YewTee Point in May 21. Aggregate leverage improved 0.6ppt q-o-q to 33.3% in 4QFY21. Average cost of debt remains 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.
  • Potential easing forthcoming. Current elevated new cases of COVID-19 infections are expected to persist for another 3-6 months before reaching a new normal of manageable new cases at a few hundred per day. If the weekly growth rate for COVID-19 infection falls below 1x, the Multi-ministry Taskforce would consider easing safe distancing measures. The government could allow groups of up to five household members to dine in at F&B outlets, which would ushers shoppers back to suburban malls.
  • 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 when opportunities arise. Frasers Centrepoint Trust’s balance sheet has deleveraged with aggregate leverage at 33.3%. 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.

EARNINGS REVISION/RISK






Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-10-28
SGX Stock Analyst Report BUY MAINTAIN BUY 2.98 DOWN 3.060



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