Resilient Suburban Retail Metrics

• Frasers Centrepoint Trust (SGX:J69U)’s revenue and NPI jumped ~160% y-o-y and ~213% y-o-y in 2H21, but was both lower at ~4% h-o-h, while its FY21 DPU at S$0.1209 was strong at +33.7% y-o-y; it missed our estimates but was ahead of the street.
• We continue to see suburban malls leading Singapore’s retail sector recovery in its long reopening phase, with Frasers Centrepoint Trust’s resilient occupancies and improving rental reversions from its more sizeable AUM supporting DPU recovery in FY22.
• We have fine-tuned DPUs and kept our DDM-based target price at S$2.90 (COE: 6.2%, LTG: 2.0%). Valuations at 5.5% DPU are undemanding versus peers and history, and Frasers Centrepoint Trust remains within our top S-REIT picks. BUY.

Stronger Occupancy, De-risking FY22 Expiries

• Frasers Centrepoint Trust's portfolio occupancy rose to 97.3% (from 96.4% in 3Q21) with improvements across 8 of its 11 properties, at between 0.3ppt (at Northpoint) and 4.6ppt (at Waterway Point). Lower occupancies at Tampines 1 (99.2% to 97.1%) and White Sands (96.3% to 95.4%) reflect timing of renewals and should rise in 1Q22.
• It has de-risked about 25% of the ~900k sf of leases expiring in FY22, which are in advanced negotiations, according to management. We expect occupancies to be resilient, with the leases concentrated at its larger destination malls, Causeway Point (23%) and Waterway Point (17%).

Flattish Rental Reversions, to Improve in FY22

• While shopper traffic in 4Q21 was at 56-59% of pre-COVID levels, Frasers Centrepoint Trust's tenant sales were better at 93-98%, and ahead of CapitaLand Integrated Commercial Trust (SGX:C38U)’s 92.4% for its suburban malls, and Suntec REIT (SGX:T82U) at ~67%. Read also CapitaLand Integrated Commercial Trust - Maybank Kim Eng 2021-10-24: In Recovery Mode; Visible Growth Drivers Into FY22e and Suntec REIT - Maybank Kim Eng 2021-10-25: A Better Balance. We see both metrics being on a positive trajectory in FY22.
• Rental reversion was at -0.6% for flattish in 1H22, it should improve as tenant sales gain traction.

Strong Balance Sheet, Further Capital Recycling

• Frasers Centrepoint Trust's AUM was a S$1.5b debt headroom (at 45% limit).
• Frasers Centrepoint Trust has grown its AUM to comprise four destination assets, with eight (of nine malls) occupying footprints in excess of 150k sf NLAs.
• While we expect management will look towards increasing yield on its enlarged portfolio, Frasers Centrepoint Trust's balance sheet is strong and we see room for AUM growth from its sponsor ROFR pipeline assets.

Source: Maybank Kim Eng Research - 27 Oct 2021