A Solid Start; Our Preferred Retail Play

• FRASERS CENTREPOINT TRUST (SGX:J69U)’s 1Q19 DPU of SGD3.02cts, up 0.7% y-o-y, was led by improved occupancies across all assets and a +6.9% rental reversion, driven by strong leasing momentum at Causeway Point and further entrenchment of Changi City Point as an outlet mall.
• Following in-line results with our estimates, our forecasts and DDM-based Target Price of SGD2.55 (WACC: 6.9%, LTG: 2.0%) are unchanged.
• Frasers Centrepoint Trust’s 5.7% DPU yield is compelling and it remains our preferred retail REIT given its strengthening suburban mall footprint, visible growth drivers, strong balance sheet and potential acquisition catalysts.
• BUY.

Another Strong Quarter

• Frasers Centrepoint Trust’s revenue grew 2.9% y-o-y/1.6% q-o-q on the back of a 2.5% y-o-y/7.6% q-o-q rise in NPI. The performance was led by an improvement in portfolio occupancy (YoY and q-o-q to 96.2%) driven by stronger occupancies across all six malls and a +6.9% rental reversion.
• The strongest reversions were at Causeway Point (CWP), up 11.1%, with the renewal of its 25 leases (including three anchor/ mini-anchor tenancies), which contributed to 19.8% of its NLA and about 71% of all renewal leases for Frasers Centrepoint Trust’s portfolio.
• Excluding Northpoint City, overall shopper traffic was up 3.5% y-o-y, whilst tenants’ sales dipped slightly by -0.9% y-o-y between Sep-and-Nov 2018.
• Looking ahead, we see strong leasing momentum supporting renewal efforts into the rest of FY19 (46% of expiries are at CWP).

Larger Malls and Outlet Malls Are More Insulated

• Northpoint City North Wing (NCNW) has likely stabilised post its AEI; its revenue was up 4.5% y-o-y/3.8% q-o-q and NPI grew 2.2% y-o-y/9.8% q-o-q, as occupancy rose q-o-q from 96.5% to 97.9%. We see shopper traffic improving given the asset’s increasing relevance as a destination mall.
• Its Changi City Point (CCP) asset, successfully repositioned as an outlet mall, delivered 12.7% y-o-y and 18.7% y-o-y growth in revenue and NPI, as occupancies improved q-o-q from 93.8% to 94.8% with stronger shopper traffic from the opening of the Expo Downtown Line station driving tenant sales.
• We continue to see larger destination malls demonstrating more defensive attributes against e-commerce competition.

Next Growth Phase With New CEO

• At its AGM, CEO Dr Chew Tuan Chiong announced his intention to retire at 62 years of age after leading Frasers Centrepoint Trust since 2010. A succession plan is in place and we expect a new CEO to be in place soon.
• The growth strategy will remain unchanged in our view, and investors can look forward to Frasers Centrepoint Trust’s next growth phase.

Source: Maybank Kim Eng Research - 22 Jan 2019