Resilient Suburban Mall Metrics, BUY

• Frasers Centrepoint Trust (SGX:J69U)’s portfolio occupancy was stable at 97.2% in 1Q22 (versus 97.3% in 4Q21), while rental reversion, which improved from FY21, looks set to strengthen further as tenant sales gain traction into the coming quarters. Strong leasing momentum has helped to de-risk near-term expiries while tenant remixing efforts against high mall occupancies, should support rental upside.
• We continue to see suburban malls leading the retail sector recovery in Singapore’s long reopening phase, with stable operating metrics for Frasers Centrepoint Trust’s more sizeable suburban malls portfolio underpinning its DPU visibility.

Stable Occupancy, De-risking FY22E Expiries

• Performance was mixed across Frasers Centrepoint Trust's portfolio, as occupancy improved q-o-q at Causeway Point (from 98.6% to 99.0%), Waterway Point (98.4% to 99.4%) and Hougang Mall (97.8% to 99.7%), while it dipped at Changi City Point (from 94.7% to 92.6%), and by 0.1-2.9 ppts for its three remaining smaller retail assets.
• Central Plaza’s office occupancy fell from 91.8% to 71.7% with the exit of an anchor tenant, but plans to reconfigure the space to draw service trade tenancies should deliver stronger rents. It has de-risked 36% of leases expiring in FY22, with 15-20% in advanced negotiations.

Expect Rental Reversion to Improve in FY22E

• Tenant sales continued to improve with easing of dining-in signed in 1Q22, Frasers Centrepoint Trust’s rental reversion was better than the -0.6% achieved for FY21, according to management. We expect reversions to be flattish in 1H22, but it should improve as tenant sales gain traction.

Strong Balance Sheet, Eyeing AUM Growth

• Frasers Centrepoint Trust's balance sheet remains term, we see room for AUM growth from its sponsor ROFR’s pipeline assets, which should provide upside to DPUs.
• Our forecasts and DDM-based target price for Frasers Centrepoint Trust (COE: 6.2%, LTG: 2.0%) are unchanged. BUY.

Source: Maybank Kim Eng Research - 26 Jan 2022