• Share price has fallen 15.5% from YTD peak, as at 13 Mar close
• DPU grew even during last GFC
• Not immune, but expected to remain resilient

Share Price Has Taken a Beating, in Line With Overall Weak Market Conditions

Frasers Centrepoint Trust’s share price has not been spared from the rough market conditions, with a decline of 15.5% from its YTD peak of S$3.03, based on the closing price on 13 Mar 2020. The sell-off in the financial markets have been broad based, which we believe is driven by increasing fears of a global recession due to the widespread impact of COVID-19.

FCT’s shopper traffic saw a decline of 10-20% in the first two weeks of February, especially during the weekend after DORSCON was raised to orange. Since then, footfall at FCT’s malls has improved progressively from the third week of Feb and is almost back to pre-COVID-19 levels by the first week of Mar.

That said, the impact on tenants’ sales is larger. While this has also progressively picked up, it is slower than the pace of recovery as compared to shopper traffic and unsurprisingly still below pre-COVID-19 levels. We believe trade sectors such as grocers, pharmacies, medical halls and education would still perform resiliently, while fashion and apparel, jewellery, health and fitness and certain F&B tenants would take a longer time to recover.

Resilient DPU Even During Last GFC

In terms of support measures, FCT will be passing on the full 15% property tax rebate to all qualifying tenants, and has also given tenants the flexibility for the conversion of security deposits paid in cash to Banker’s Guarantees to ease tenants’ cash flow constraints. The flexibility for shorter operating hours and complimentary car parking during certain timings has also been introduced.

From our understanding, no further rental concessions have been given to tenants, although this may still be progressively rolled-out in the future. We look back at FCT’s performance during the last Global Financial Crisis, and find solace that its DPU still increased by 11.3% in FY08 (financial year end 30 Sep) and a further 3.0% in FY08.

Operationally, FCT’s occupancy rate ranged from 87.7% to 99.3% from 1QFY08 to 4QFY09, but the drop in occupancy was largely attributed to substantial asset enhancement works at Northpoint. Rental reversions remained positive during that period, but FCT only had three malls in FY08 and FY09.

Overall Industry Conditions to Remain Challenging, But Expect FCT to Standout Defensively

Given the uncertainty over the scale and timeline of COVID-19, retail conditions will remain challenging. We expect FCT to stand out with its defensive attributes, but it will not be immune from these challenging conditions. As such, we lower our FY20 and FY21 DPU forecasts by 1.1% and 0.8%, respectively, due to more conservative rental assumptions. We also lower our risk-free rate assumption from 2% to 1.55% in light of the sharply compressed Singapore government 10-year bond yield. Our fair value estimate increases from S$2.93 to S$3.07.

Source: OCBC Research - 16 Mar 2020