FRASERS CENTREPOINT TRUST (SGX:J69U)
Frasers Centrepoint Trust - 2HFY22 Resiliency From Essential Services & Growth In Domestic Consumption
- Frasers Centrepoint Trust achieved positive rental reversion of 4.3% (average vs average) for 2HFY22. Portfolio occupancy improved 0.4ppt q-o-q to 97.5% in 4QFY22. Occupancy cost has improved 1.3ppt to 16.2% in FY22, which provides headroom for Frasers Centrepoint Trust to raise retail rents.
- Frasers Centrepoint Trust’s suburban malls cater to daily necessities and benefit from hybrid working arrangements.
- Frasers Centrepoint Trust provides defensive FY23 distribution yield of 6.0% and trades at P/NAV of 0.89x. Maintain BUY. Target price: S$2.46.
Frasers Centrepoint Trust (FCT)'s 2HFY22 Results
- Frasers Centrepoint Trust (SGX:J69U) reported 2HFY22 DPU of S$0.06091 (flat y-o-y), which is in line with expectations. Gross revenue and NPI increased 7.9% and 6.0% y-o-y respectively in 2HFY22 due to broad-based growth for its portfolio of suburban malls. Ancillary income was boosted by atrium events, which resumed starting Apr 22.
- Outperformance from dominant malls. Frasers Centrepoint Trust achieved positive rental reversion of 1.2% (1HFY22: 1.7%) (1st year incoming vs last year outgoing) and 4.3% (1HFY22: 4.1%) (average vs average) for 2HFY22. Frasers Centrepoint Trust has signed 218 leases covering 252,958sf of retail space in 2HFY22. Causeway Point, Northpoint City South Wing, Waterway Point, Tiong Bahru Plaza and White Sands recorded strong positive reversion of 4.4%, 4.4%, 4.9%, 4.4% and 4.2% respectively (average vs average) in FY22.
- Committed occupancy improved 0.4ppt q-o-q to 97.5% in 4QFY22. Causeway Point and Northpoint City South Wing hit occupancy of 100%. Occupancy at Century Square and Tampines 1 improved 3.8ppt and 1.3ppt q-o-q respectively to 86.8% and 99.1% due to progressive backfilling of vacant spaces. Occupancy of office space at Central Plaza improved 11.9ppt q-o-q to 88.9% after co-working operator JustCo took up levels 4 and 5.
- Tenant sales increased 11.3% in FY22. Tenant sales have surpassed pre-pandemic levels since Oct 21 and exceeded pre-pandemic levels by 11% as of Sep 22. Occupancy cost has improved 1.3ppt to 16.2% in FY22, which provides headroom for Frasers Centrepoint Trust to raise retail rents. us on replacing weak tenants with refreshed offerings that are more relevant and attractive to consumers.
- Conservative capital management. Aggregate leverage remains low at 33%. 69% of its borrowings are hedged to fixed rates. Management estimated that every 50bp increase in SOR/SORA will have a negative impact on DPU of 0.169 cents per year.
- We estimate average cost of debt at 2.8% in 4QFY22. Management expects cost of debts to increase to above 3% in FY23 compared to 2.5% in FY22. We estimate cost of debts at 2.8% in 4QFY22. We expect cost of debt to rise to 3.4% in 2HFY23.
- Capital values relatively stable. Appraised valuation of Frasers Centrepoint Trust’s suburban malls increased marginally by 0.2% or S$9.5m to S$5,516m. Valuation of Waterway Point increased 1.0% or S$9.5m to S$1,312m. Frasers Centrepoint Trust recognised gain of S$2.7m in fair value of its investment properties. NAV per unit increased 1.3% y-o-y to S$2.33.
- Contributions from additional 10% stake in Waterway Point in FY23. Frasers Centrepoint Trust has entered into agreement with Japanese developer Sekisui House to acquire an additional 10% stake of Waterway Point, a dominant suburban mall located next to Punggol MRT station with NLA of 389,335sf, for S$132.3m. Waterway Point has consistently performed well and Punggol is a vibrant and growing HDB housing estate. Frasers Centrepoint Trust will increase its stake in Waterway Point from 40% to 50%.
Suburban malls cater to daily necessities.
- Essential services, comprising F&B, supermarket & hypermarket, groceries, beauty & health and other services (personal grooming, clinics and etc), are patronised by consumers on a regular basis. Suburban malls typically have a higher proportion of retail space allocated to essential services at 40% of NLA, compared to industry average of 20-30%. Frasers Centrepoint Trust allocates a higher 45% of NLA for essential services, which contributes 54.1% of its gross rental income.
- Suburban malls benefit from hybrid working arrangements. Frasers Centrepoint Trust’s suburban malls benefit from hybrid working arrangements as they are located in close proximity to residential homes. Its suburban malls function as fulfilment hubs for “last-mile” delivery and Click & Collect services in their immediate residential catchment.
Frasers Centrepoint Trust – Earnings forecast revision and recommendation
- We trimmed FY23 DPU forecast for Frasers Centrepoint Trust by 2.8% due to higher cost of debts.
- Maintain BUY recommendation on Frasers Centrepoint Trust. Our target price of S$2.46 is based on DDM (cost of equity: 7.25%, terminal growth: 2.6%).
- See
- Catalysts:
- Normalisation in shopper traffic and tenant sales. Growth in domestic consumption.
- 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/
2022-10-31
SGX Stock
Analyst Report
2.46
DOWN
2.560
