Shopping galore: Frasers Centrepoint Trust’s game changer may be Causeway Point

Mall visits fuel further positivity. We visited FCT’s Causeway Point and its newly acquired Bedok Point recently. Shopper traffic was decent at Bedok Point though we see room for improvement in occupancy and tenant mix. Causeway Point was bustling despite major AEI work and ROI may beat management’s target of 13%. As FCT’s largest asset, we see the refurbishment of Causeway Point as a potential game-changer for FCT.

With funding details concluded, we factor in the acquisition of Bedok Point and raise our FY12-13 DPU estimates by less than 1%. Our DDMbased target price is, however, unchanged at S$1.63 (discount rate 8.4%). We continue to like FCT’s exposure to resilient suburban retail assets and strong balance sheet (34% after acquisition), anticipating catalysts from stronger-than expected rentals for Causeway Point after its refurbishment and improved stock liquidity.

Bedok Point: decent mall with scope for improvement. Shopper traffic was relatively light during our visit on a late weekday afternoon though it is not hard to imagine a packed mall during lunch and dinner time given its high F&B content. We see room for improvement in occupancy and tenant mix.

Scope for improvement. We see the potential for improvements in occupancy and tenant mix. At a committed occupancy of 97.4% at the point of acquisition, we note some space in the basement which could be leased out to prospective tenants. With a higher F&B content in the mall, tenant management to include more non-F&B retail and fashion offerings is possible, to drive up rents and shopper traffic. Currently enjoying good footfall from students and teenagers, we see the potential for the mall to capitalise on this advantage.

Likely game-changer for FCT. We like the new Causeway Point for its open-store concept, and brighter and wider passageways based on what we see from the revamped lower levels. We believe all this would enhance the shopper’s experience, especially as crowds build up at the mall. Particularly, we note the open-store concept adopted for some cosmetic brands previously within Metro and the removal of previously flailing tenants.

We also like the new-to-market brands brought in to refresh the mall and higher-end retail offerings (typical of Orchard Road malls) to cater to a maturing neighbourhood which is located far from central Singapore. With its good shopper traffic, tenant mix and tenant interest in space under refurbishment (99% already pre-committed), we see upside for rents (S$12.20 psf) and ROI to beat management’s expectations (13%) for the refurbishment.

As FCT’s largest asset and contributing almost half of FCT’s NPI, we believe that the successful refurbishment of Causeway Point could turn out to be a game-changer for FCT.