• Frasers Centrepoint Trust's portfolio’s occupancy dipped by 1.5ppt q-o-q to 94.6% in 3QFY20.
• Footfall recovered to 61.1% of pre-COVID levels this month.
• Decline in valuation likely capped at 1.5-3% in our view.

What’s New

3Q20 Operational Update

• Frasers Centrepoint Trust (SGX:J69U)'s portfolio’s occupancy dropped by 1.5ppt q-o-q to 94.6%, led by Bedok Point (-3.7ppts q-o-q) and YewTee Point (-2.6ppts q-o-q).
• Including lease commitments, 4.8% of leases by NLA will be due for renewal in 4QFY20.
• More than 95% of tenants have resumed business since 19 June.
• Shopper traffic has rebounded to 61.1% of pre- COVID levels in the month of July, a slight uptick compared to June (48.2% pre-COVID levels).
• Gearing and cost of borrowing was flat in comparison to 2QFY20 at 35% and 2.5% respectively.
• Interest coverage ratio weakened from 6.4 x to 4.8 x.

Risk of further rental assistance is low

• Frasers Centrepoint Trust had disbursed approximately S$25m in landlord’s rental rebates to tenants, which we estimate to be 1.5 months’ worth on a blended basis.
• As of end of 3QFY20, Frasers Centrepoint Trust has satisfied the requirement of providing 2 months of rental waivers to qualifying commercial tenants.
• Frasers Centrepoint Trust's 1HFY20 of 4.67 Scts made up 45% of our full year forecast.
• This is not withstanding the 50% cash retention in 2Q20 of S$18m, which we think a portion of it may see a possibility of redistribution.

Frasers Centrepoint Trust's Outlook & Our Recommendations

Weaker occupancy as expected; lease renewals not a risk in our view

• Remaining leases to be renewed in 4QFY20 originate primarily from Causeway Point and Northpoint City (c.72% by NLA), and we do not foresee much non-renewal risk given the malls’ commanding position and dominance in their respective submarkets.
• We expect suburban shopper footfall, which has recovered to a greater extent than central malls, to continue to be resilient.
• Similar to peers, valuations will likely be hit by a softer rental growth outlook which we think may result in a 1.5%-3.0% drop in valuations at end-FY20.

Maintain BUY, target price unchanged at S$2.95

• We maintain our bullish stance as Frasers Centrepoint Trust zeros in on PGIM ARF after acquiring a further 12.07% stake in the fund at the beginning of Jul.
• Based on our calculations, DPU yield accretion will be in the range of 4.1% should equity be raised to acquire the remaining 63% stake in PGIM.
• Our S$2.95 target price implies P/B of 1.45x and FY21 dividend yield of 4.3%.

Source: DBS Research - 24 Jul 2020