Weak Quarter for FCT; Prefer CMT, MCT

• Frasers Centrepoint Trust (SGX:J69U) reported weaker occupancies and saw slower rental reversions in its 3Q20, as shopper traffic fell 52-68% y-o-y. Into the reopening however, its assets should outperform peers’ on occupancies and tenant sales, albeit visibility on the sector’s recovery remains low. While its recent PGIM ARF deal is accretive at 4% and should strengthen its existing suburban mall footprint, a potential restructuring is more likely for the medium term.
• Our new DDM-based Target Price is SGD2.45 (COE: 6.6%, LTG: 2.0%). HOLD.
• We prefer CapitaLand Mall Trust (SGX:C38U)’s (BUY, Target Price SGD2.35, see report: CapitaLand Mall Trust - Maybank Kim Eng 2020-07-22: Before The Spend) valuations at 6.0% FY21 yield and Mapletree Commercial Trust (SGX:N2IU) (BUY, Target Price SGD2.15, see report: Mapletree Commercial Trust - Maybank Kim Eng 2020-07-24: Easing Into A Reopening) for its stronger DPU visibility.

Lower Occupancies, Rental Reversion Mildly Positive

• Frasers Centrepoint Trust's portfolio occupancy fell q-o-q from 96.1% to 94.6% amid weaker leasing conditions. Vacancies at its four largest malls rose between 0.8-1.9% q-o-q with Causeway Point, Northpoint City North Wing and Waterway Point maintaining their occupancies above 94.4%. Occupancy at Changi City Point fell from 91.8% to 90.8%, as its tenancies were affected by the prolonged work-from-home measures.
• Frasers Centrepoint Trust's rental reversions in 3Q20 were slightly positive according to management, which was down from a +5.2% in 2Q20. We expect a more challenging outlook for its rental reversions, and management expect lease negotiations to stretch longer.

Tenant Support Package Topped Up

• About SGD25m in landlord’s rental rebates have been disbursed to its tenants (up from the SGD17m announced in 2Q20) to meet mandatory obligations under the new rental relief framework (to offer a two-month rental waiver for eligible tenants). It is eyeing a targeted approach to further assistance measures, and will look to improve its tenant sales.

Added to PGIM Stake, Further Deal Visibility Low

• Frasers Centrepoint Trust had acquired an additional 12.07% stake in PGIM Real Estate Asia Retail Fund (ARF) for SGD197.2m, which raised its interest to 36.89%, while its sponsor holds the remaining 63.11%.
• We expect that Frasers Centrepoint Trust will acquire the properties either on an individual basis, or more likely as portfolio deal, which could be valued at > SGD1.0m. Any potential transaction is likely to be partially funded via an EFR, given its SGD0.7-1.2b debt headroom (based on 45-50% leverage limits).

Source: Maybank Kim Eng Research - 24 Jul 2020