Stable Occupancy, Mall Performance a Mixed Bag

• Frasers Centrepoint Trust's retail occupancy was stable at 96.1%, versus 96.4% in 1Q21, with better improvements at Changi City Point (from 90.7% to 94.7%), Century Square (94.1% to 96.4%) and Hougang Mall (95.6% to 99.3%) from new tenancies. These helped offset the weaker performance at Waterway Point (98.1% to 92.2%) and Tampines 1 (94.2% to 91.9%) as their anchor tenants exited.
• Frasers Centrepoint Trust's expiring leases in FY21 eased to 20.0% (from 28.3% in 1Q21) with half of leases renewed, and are mostly concentrated at Tampines 1 (~25% of its NLA), Century Square (~47%) and Hougang Mall (c.49%).

Recovery Gaining Traction, Rents to Bottom Out

• Shopper traffic has continued to lag tenant sales, which have recovered to near pre-COVID levels. Rental reversion was at -0.7% (or otherwise +2.9%, if based previously on the difference of average rental rates between the new and preceding lease on same retail space).
• Frasers Centrepoint Trust's management sees limited impact with the adoption of the Code of Conduct (which sets out guidelines for negotiation of lease agreements) from 1 Jun.
• We see rent reversions improving on the back of tenant sales traction in 2H21.

AUM Up, Catalyst From Capital Recycling

• The Asia Retail Fund (ARF) deal has helped to double Frasers Centrepoint Trust's AUM to S$6.4b. The quarter saw active asset recycling with completion of the S$110m Anchorpoint debt eased from 2.20% to 2.16%. Further asset recycling is likely, as management looks towards increasing yield on its larger malls.

Maintain BUY

• Frasers Centrepoint Trust (SGX:J69U)’s 1H21 DPU jumped 28.4% y-o-y following the Asia Retail Fund (ARF) soft at -0.7%, declines look leading the retail sector recovery in Singapore’s long reopening phase, with resilient operating metrics for its more sizeable suburban malls portfolio strengthening DPU visibility.
• Our forecasts are unchanged, and Frasers Centrepoint Trust remains one of our top S-REIT picks. Our DDM-based target price of S$2.90 (COE: 6.2%, LTG: 2.0%) implies 23% total return. BUY.

Source: Maybank Kim Eng Research - 26 Apr 2021