Frasers Centrepoint Trust - Tenant Sentiment Holding Up
- No financials provided in Frasers Centrepoint Trust (SGX:J69U)'s 3QFY22 (1 Apr 2022 to 30 Jun 2022) business update.
- Retail occupancy dipped from 97.8% to 97.1% due to pre-termination of cinema operator Filmgarde’s lease at Century Square, resulting in mall occupancy declining from 93.4% to 83.0%. Frasers Centrepoint Trust is in advanced negotiations with other cinema operations to take up the space.
- Current occupancy cost of 16% remains healthy compared to the 15.7-17.0% range over 2016-19. Occupancy at Frasers Centrepoint Trust’s only office asset, Central Plaza, remains at 77% after non-renewal by an anchor tenant who gave up three floors of space.
- While some of Frasers Centrepoint Trust’s peers have begun raising service charges for newly signed leases, Frasers Centrepoint Trust’s current strategy is to manage inflationary cost by increasing gross rents.
- Electricity cost is largely hedged for FY22, with the first energy contract expiring in Aug 22. Remainder of the energy contracts will expire in Feb and May 23. If electricity rates stay at current levels, we could potentially see a 50-60% jump in electricity cost when electricity hedges roll off, translating to a negative ~1.7% impact to Frasers Centrepoint Trust's FY23F DPU. We have not built this into our current numbers.
- Frasers Centrepoint Trust's 3QFY22 tenant sales were up 23% y-o-y, 10% above pre-COVID levels, while shopper footfall jumped 32% to reach 80% of pre-COVID levels since Apr 22, after workplace capacity restrictions were lifted. We think tenant sales at above pandemic levels could be partly driven by inflationary cost given the 3.6% and 4.4% core inflation numbers in May and Jun 22, excluding which, tenant sales would still have punched above 2019 levels.
- Cost of debt inched up q-o-q from 2.2% to 2.4% while 69% of its borrowing has been hedged, an improvement from end-Dec 21 interest hedge of 54%. Frasers Centrepoint Trust’s S$589m green loan facility secured in May 22 has a step-down feature which could result in some interest savings if Frasers Centrepoint Trust maintains GRESB ratings of four stars and above.
- Frasers Centrepoint Trust’s gearing of 33.9% is low compared to its peers.
- We maintain our ADD call and unchanged DDM-based target price of S$2.75 for Frasers Centrepoint Trust. We continue to like Frasers Centrepoint Trust for its pure exposure to suburban malls which should enable it to outperform peers.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2022-07-28 2022-07-28
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