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Author: simonsg   |   Latest post: Fri, 13 Dec 2019, 4:31 PM

 

Frasers Centrepoint Trust 3QFY19 - Newly-Acquired PGIM ARF & Waterway Point Starting to Contribute

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  • Frasers Centrepoint Trust (SGX:J69U) 3QFY19 DPU of 3.00 S cents was slightly below our expectations.
  • Occupancy at Causeway Point was mildly affected by AEI while property expenses were higher than expected. PGIM ARF made maiden distribution of S$5m. The acquisition of a one-third stake in Waterway Point was completed on 11 Jul 19. Management expects Waterway Point to contribute 14-15% of group NPI.
  • Frasers Centrepoint Trust share price has outperformed and investors should lock-in some gains. Downgrade to HOLD.
  • Target price: S$2.66. Entry price: S$2.42.

3qfy19 Results

  • FRASERS CENTREPOINT TRUST (SGX:J69U) reported a DPU of 3.00 S cents (1 Apr 19 to 27 May 19: 1.909 S cents, 28 May 19 to 30 Jun 19: 1.091 S cents), down 1.7% y-o-y. The results were slightly below our expectations due to higher property expenses and interest expense.

Maiden contribution from PGIM ARF.

  • Gross revenue from Causeway Point declined 2.2% y-o-y as occupancy dipped 2.4ppt y-o-y to 97.5% affected by AEI. The construction of the underground pedestrian link to Woods Square is scheduled to complete in Dec 19. Gross revenue from Northpoint City North Wing and Changi City Point grew 3.8% and 5.5% respectively.
  • Frasers Centrepoint Trust’s stake in PGIM Real Estate Asia Retail Fund (PGIM ARF) has increased from 18.8% to 21.1% after some other shareholders redeemed their investments on 30 Jun 19. Frasers Centrepoint Trust received distribution of S$5m from PGIM ARF, comprising a regular interim dividend of S$2m and one-off special dividend of S$3m due to the divestment of Liang Court.

Property expenses increased 8.9% y-o-y.

  • Property tax increased 33.2% due to the absence of property tax refund that occurred last year and higher assessed annual value for Northpoint City North Wing. Interest expense increased 44.2% due to additional borrowings and higher interest rates. Frasers Centrepoint Trust also retained S$1.86m of income available for distribution in 3QFY19.

FCT achieved positive rental reversion +3.1%,

  • led by Bedok Point (+8.1%), Causeway Point (+4.1%) and Anchorpoint (+3.7%), while YewTee Point (-2.5%) experienced negative reversions. Changi City Point was unaffected by the opening of Jewel Changi Airport as shopper traffic is mainly driven by events at Singapore Expo.

Portfolio occupancy improved to 96.8%

  • (+0.8ppt q-o-q), which is also at its highest level in the past year. This was led by Bedok Point (+6.3 ppt q-o-q), YewTee Point (+2.4ppt q-o-q) and Northpoint City North Wing (+0.6ppt q-o-q). Bedok Point saw the most significant improvement in occupancy (+6.3pt q-o-q) and rental reversion (+8.1%).
  • Management attributed the better performance to efforts in raising occupancy by bringing in more F&B tenants (raising F&B mix to 40%). The higher occupancy also drove an increase in shopper traffic.

Gearing declined by 5.3ppt qoq to 23.5 %,

  • as at 3QFY19 due to equity fund raising, which garnered proceeds of S$437.4m with issue of 184m new shares. Gearing would have risen to 33.2% post-acquisition of the 1/3 interest in Waterway Point (completed on 11 Jul 19).
  • All-in cost of borrowings decreased 0.1ppt q-o-q to 2.7%. Management has hedged 67% (+5ppt q-o-q) of its total borrowings on fixed interest rates.

Stock Impact

Stable and resilient performance.

  • The resilient shopping, healthy mall occupancy and steady shopper traffic.
  • On a Northpoint City North Wing and YewTee Point. Tenant sales psf improved 2.9% y-o-y.

Larger malls in a strong position to drive organic growth.

  • Frasers Centrepoint Trust’s portfolio performance retail space per capita.
  • Causeway Point, Northpoint City North Wing and Waterway Point are located in the Outer North and Outer Northeast regions in Singapore with retail space per capita at between 2-3sf, implying higher opportunity to grow shopper traffic.

Adding depth to suburban retail through Waterway Point and PGIM.

  • Frasers Centrepoint Trust has entered into a Punggol MRT station.
  • Waterway Point is a 99-year leasehold 4-storey suburban family-oriented shopping mall with NLA of 371,200sf. The acquisition was completed on 11 Jul 19. Management expects Waterway Point to contribute 14-15% of group NPI.

Pipeline from sponsor Frasers Property.

  • Frasers Centrepoint Trust could acquire:
    1. the remaining 70% stake in Waterway Point, or
    2. Northpoint City South Wing.

Earnings Revision / Risk

  • We trimmed our forecasts for DPU lower by 1% for FY19 and 4% for FY20 due to higher property expenses.

Valuation / Recommendation

Downgrade to HOLD.

  • Our target price of S$2.66 is based on DDM (required rate of return: 6.5%, terminal growth: 1.2%). Entry price is S$2.42.

Share Price Catalyst

  • Positive newsflow on rising retail rentals, yield-accretive acquisitions or asset enhancement ortunities.

Source: UOB Kay Hian Research - 24 Jul 2019

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