Frasers Centrepoint Trust - CIMB Research 2017-01-20: Strong showing from Causeway Point

FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust 1QFY17 - Strong showing from Causeway Point

1QFY9/17 DPU of 2.89 Scts (+0.7% yoy) was in line with consensus and our expectations, forming 24.7% of our full-year forecast.
Portfolio occupancy improved 1.9% pts qoq to 91.3%. FCT renewed 12.4% of the portfolio’s NLA in the quarter and achieved +6.9% rental reversion.
Shopper traffic up 2.7% yoy to 27.1m.
AEI at NP to peak in 2QFY17; to be completed by end-Sep 17.

Maintain Add with unchanged DDM-target price S$2.01 on continued strong performance and acquisition upside.

The key positives from 1QFY17 results was average portfolio rental reversion of +6.9%, driven by Causeway Point (CP), and a 2.7% yoy increase in portfolio shopper traffic.
Gross revenue was down 6.4% yoy due to lower contribution from Northpoint (NP) which is undergoing AEI works. However, lower property expenses (due to write-back of property tax) led to a smaller 5.7% yoy decline in NPI.
Distribution to unitholders was up 1.1% yoy as 70% of manager’s fees were paid in units (vs. 20% in 1QFY16).

Portfolio occupancy improved 1.9% pts qoq to 91.3%, owing to higher occupancy from Changi City Point (CCP) with the opening of a new supermarket as well as completion of phase 1 of the AEI at NP. Excluding Yishun 10 Retail Podium, occupancy at NP would be 81.1% instead of 81.9%.
During the quarter, FCT renewed 12.4% of the portfolio’s NLA and achieved +6.9% rental reversion. CP and CCP achieved +10.6% and +12.2% reversion, respectively, while Bedok Point (BP) experienced -10.1% reversion.

On a yoy basis, all malls, except for Anchorpoint, saw stable or improved shopper traffic.
Portfolio tenant sales were 10.1% lower yoy due to AEI at NP. Meanwhile, CCP was affected due to a changeover in the anchor tenant space. Excluding NP and CCP, portfolio tenant sales were 2.4% softer yoy.

Occupancy of NP is expected to trough at 57-58% from Feb-Apr 17 but increase progressively as AEI approaches completion at end-Sep 17. NP is on track to meet the targeted 9% uplift in rental rate from the AEI. 24.3% of the portfolio’s NLA is up for renewal in 9MFY17.
CP accounts for c.37% of the lease expiries and should continue to drive positive rental reversion.
Reversions at CCP could be erratic and expected to stabilise with the opening of the new MRT station. Leasing at BP could be challenging.

We maintain Add with an unchanged target price on FCT.
We think investor interest could pick up when the peak of NP’s AEI passes through in the next three months and occupancies and earnings recover.
Meanwhile, FCT’s low gearing of 29.7% puts the trust in a strong position to explore inorganic growth. Its sponsor has two assets that could be injected when stabilised.
Downside risk could come from a delay in the completion of the NP AEI.

YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-01-20

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.010 Same 2.010