Frasers Centrepoint Trust - Maybank Research 2022-07-27: Resilient Mall Metrics

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FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - Resilient Mall Metrics

Stable occupancies, strong tenant sales growth

• Frasers Centrepoint Trust (SGX:J69U) saw stable portfolio occupancy of 97.1% in 3Q22 (vs 97.8% in 2Q22) and positive rental reversion. Tenant sales growth, having gained traction, looks set to improve with recovering shopper traffic. Strong leasing momentum, tenant remixing and high mall occupancy should support rental upside.
• We continue to see suburban malls anchoring Singapore’s retail sector recovery during the reopening phase, with resilient operating metrics for Frasers Centrepoint Trust’s sizeable suburban malls portfolio underpinning its DPU visibility.

Better occupancies at destination malls

• There was marginal improvement at Frasers Centrepoint Trust's 3 destination malls (Causeway Point, Northpoint City North Wing and Waterway Point) which pushed their occupancies to 99.3-100%. These partly offset lower occupancies mainly attributed to the Asia Retail Fund assets.
• Occupancy at Century Square fell to 83.0% in 3Q22 (from 93.4% in 2Q22) due to a pre-termination by its cinema operator, but management is in final negotiations to backfill the space. Leasing momentum is strong and Frasers Centrepoint Trust has renewed the bulk of its FY22E expiring leases with just 5.3% remaining (vs 15.0% in 2Q22).

Reversion to stay positive, could improve

• Tenant sales jumped 23% y-o-y, led by Tampines 1 and Waterway Point, to 11-14% above pre-COVID levels (vs 4-13% in 2Q22), ahead of shopper traffic, which rose to 73-85% (from 66-69%).
• Rental reversion turned positive at +1.7% in 1H22 (vs -0.6% for FY21), and management expects this to be maintained.
• We see scope for rents to rise with lower occupancy cost, with limited near-term net property income impact from higher utility costs, as its hedged contracts mostly expire from Feb 2023. We think downside could be offset by higher gross turnover contribution, atrium sales and carpark income.

Low gearing, potential deal upside

• Frasers Centrepoint Trust’s balance sheet remains strong with gearing stable at 33.9% (vs 33.3% at end-Mar 2022) and interest cover high at 5.2x. Frasers Centrepoint Trust has kept its fixed-rate borrowings at 69% (COE: 6.2%, LTG: 2.0%) are unchanged. BUY.
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Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-07-27

SGX Stock Analyst Report BUY MAINTAIN BUY 2.80 DOWN 2.900