Organic Growth Momentum Intact; Top Pick

• FRASERS CENTREPOINT TRUST (SGX:J69U)’s 3Q19 DPU of SGD3.00cts (-1.2% y-o-y) was inline with our/consensus est.’s driven by stronger occupancies and positive rental growth momentum.
• While our DPUs are lowered by 3% to factor in funding for its recent investments (PGIM fund, Waterway Point), organic growth fundamentals remain intact.
• Frasers Centrepoint Trust has delivered strong share price action (see Frasers Centrepoint Trust's share price), but we see upside catalysts to valuations backed by entrenchment of its suburban mall footprint, visible growth drivers, sound balance sheet, and additional deals.
• Our DDM-based Target Price is raised 8% to SGD2.80 (COE: 6.6%, LTG: 2.0%), on lower risk-free rate assumptions (of 2.5%). Frasers Centrepoint Trust’s 4.8% DPU yield remains compelling against peers and its growth profile, and it stays as our preferred retail REIT.

Another Steady Quarter

• Frasers Centrepoint Trust's 3Q19 revenue higher property tax expenses. Portfolio year-end.
• Rental reversion of +3.1% for 3Q19 brings 9MTD to +4.7%, and ahead of a +3.2% for FY18, led by stronger reversions at Causeway Point (+4.1%), Bedok Point (+8.1%) and Anchor Point (+3.7%).
• Portfolio shopper traffic improved by 6.1% y-o-y, up from a +2.4% y-o-y in 2Q19, while tenant sales rose 2.9% y-o-y, from -1.3% y-o-y earlier.

Limited Leasing Risk, Positive Reversions Into FY20

• Management has Mr. DIY. We see strong leasing supporting renewal efforts into FY20.
• Two-thirds of the 34.3% of total leases by NLA (37.3% of gross rental income) that will be renewed are concentrated at Causeway Point and Northpoint City North Wing, its two largest and best performing malls. We expect rental growth to be backed by limited new supply within the respective micro-markets.

Factoring in Recent Deals and Funding

• We adjusted DPUs to factor in:
  1. its SGD380m PGIM investment – Frasers Centrepoint Trust’s stake increased 30 Jun;
  2. 184m in new units priced at SGD2.35-2.38, which raised SGD437.4m (gross);
  3. the Waterway Point acquisition (one-third interest); and
  4. higher interest costs.

Source: Maybank Kim Eng Research - 24 Jul 2019