Frasers Centrepoint Trust - RHB Invest 2015-12-02: Twinkle Twinkle Northern Star

FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust (FCT SP) - Twinkle Twinkle Northern Star

We handpicked FCT as our Top BUY within the SREITs sector, as we admire its suburban resilience and strong growth potential in both the short and long term.
Maintain BUY and DDM-derived SGD2.22 TP (20% upside).
Given its strong retail dominance within Northern Singapore, we expect the REIT to register positive rental reversion for both CWP and NP, which constitute more than half of the total renewals in FY16.

We admire Frasers Centrepoint Trust (FCT), as we think that this pure suburban retail REIT is the most resilient. This is given that consumer demand for non-discretionary products and services remains firm despite increasing demand for ecommence.
As of 30 Sep, FCT’s overall portfolio occupancy remained high at 96%, coupled with a conservative gearing ratio of 28.2%.

As a substantial number of leased areas within FCT’s portfolio (30.7%) is to be renewed in FY16, we see potential organic growth for its portfolio. Of the leased area, 78% of the renewals would be due in the REIT’s largest malls, namely Causeway Point (CWP), Changi City Point (CCP) and Northpoint (NP).
We are optimistic that these malls are likely to boost the overall rental rates for FCT, as these malls continue to book in respectable positive rental reversions from 5.7-9% in FY15.
In addition, given its strong dominance within Singapore’s northern region, it is more likely that the REIT would enjoy higher rent.

Given that retail mall acquisitions are a rarity in the current environment, it is increasingly difficult for FCT to inject new malls into its portfolio. However, this is where the REIT holds an edge against other retail mall landlords.
FCT has a sponsor with visible acquisition pipeline for the trust. These include Waterway Point at Punggol (c.90% committed occupancy) and potential acquisition from its sponsor’s Australian property arm, Frasers Property Management Australia Pty Ltd (Frasers Property Australia).
A key risk to our forecasts would be declining tenants’ sales, which may hinder positive rental reversion.

We like FCT for its strong resilience, coupled with strong growth potential in both the short and long term.
Maintain BUY with DDM-derived TP of SGD2.22.

Ivan Looi RHB Research | Ong Kian Lin RHB Research | http://www.rhbinvest.com.sg/ 2015-12-02

RHB Research SGX Stock Analyst Report BUY Maintain BUY 2.22 Same 2.22