• We saw good crowds in PGIM ARF malls even on weekdays. We expect Frasers Centrepoint Trust to see a faster recovery from the impact of COVID-19 than its peers.
• We believe Frasers Centrepoint Trust is one step closer to acquiring the remaining 63.1% stake in PGIM ARF, doubling its AUM size to S$6.7bn.
• Frasers Centrepoint Trust is the only listed pure suburban malls landlord in Singapore with relatively resilient portfolio. Reiterate ADD with a DDM-based Target Price of S$2.78.

One Step Closer to Consolidating PGIM ARF Malls

• Frasers Centrepoint Trust (SGX:J69U) (36.9%) and its sponsor, Frasers Group (63.1%) finally own 100% of PGIM ARF. The next catalyst is for Frasers Centrepoint Trust to acquire the 63.1% from Frasers Group to strengthen its portfolio to include more suburban malls such as Tiong Bahru Plaza, Century Square, Hougang Mall, White Sands and Tampines 1. Based on 20%/80% debt/equity funding and 5% acquisition yield, the acquisition could raise our FY21-23F DPU forecasts by 1- 2% while gearing would reach ~43%.
• DPU accretion may not be substantial but the acquisition could further underpin its income resilience and double its AUM to S$6.7bn, making it the second largest retail REIT by retail AUM in Singapore. The opportunity to acquire a portfolio of suburban malls is scarce as malls in Singapore are tightly held.

Good Crowds in PGIM ARF’s Malls on Weekdays

• We visited PGIM ARF’s malls (Tiong Bahru Plaza, Century Square, Hougang Mall, White Sands and Tampines 1) on weekdays. We found that the weekday crowds in the malls were good although our conversations with the tenants revealed that sales were still below pre-COVID-19 level.
• All of the assets are located within five minutes walking distance of the MRT stations. Four of the five assets are situated in low retail space per capita regions while three of the five malls are dominant malls and hence face little competition in their respective areas. Given the strategic locations, the malls command strong traffic of 78-95 person psf versus other listed malls’ average of 65 person psf.

Traffic Should Normalise as Capacity Limit Measure Is Lifted

• Since the malls reopened in mid-Jun 20, traffic has seen a steady recovery with smaller decline in Jun (-51.8% y-o-y) and Jul (-38.9% y-o-y) versus -57.4% in Apr and -68.3% in May. We understand that the main hindrances to traffic recovery were social distancing and capacity limit measures. Hence, we believe traffic should normalise when the capacity limit measure is lifted.

Resilient Portfolio - ADD, DDM-based Target Price Remains at S$2.78

• We expect Frasers Centrepoint Trust to see a faster recovery from the impact of COVID-19 than its peers. COVID-19 pandemic has heightened the importance of having a resilient portfolio. Frasers Centrepoint Trust is the only listed pure suburban malls landlord in Singapore. It is also the last retail REIT with 100% focus in the domestic market if the CMT-CCT merger materialises.
• Frasers Centrepoint Trust is trading at 1.1x FY20 P/BV versus pre-COVID-19 peak of 1.3x FY20 P/BV.
• Re-rating catalysts/downside risks include faster recovery/slower recovery from COVID-19.

Source: CGS-CIMB Research - 20 Aug 2020