REITs − Singapore - 4Q16 Results Of CMT And FCT In Line With Expectations
- The results of CMT and Frasers Centrepoint Trust (FCT) both came in in line with expectations. Both retail REIT managers have re-iterated a subdued outlook on the domestic retail sector.
- Maintain HOLD on FCT with an unchanged target price of S$2.15.
- CapitaLand Mall Trust (CMT) and Frasers Centrepoint Trust (FCT) have reported their quarterly results.
Frasers Centrepoint Trust (FCT SP/HOLD/S$1.965/Target: S$2.15)
- Results in line with expectations; maintain HOLD with an unchanged target price of S$2.15. Entry price: S$1.87.
- Our valuation is based on a two-stage dividend discount model (required rate of return: 6.3%, terminal growth rate: 1.2%).
- 1QFY17 DPU of 2.89 S cents was up 0.7% yoy. 1QFY17 revenue and net property income declined 6.4% yoy and 5.7% yoy respectively mainly due to Northpoint’s AEI.
- The higher DPU despite the NPI decline mainly resulted from the REIT manager accepting 70% of fees (base and performance) in units instead of cash compared to 20% last year.
- The results were in line with our expectations, with 1FY17 DPU coming in at 24.8% of full-year forecast.
Near-term challenges despite expectations of positive rental reversions.
- While management expects to see positive reversions in FY17, it has highlighted existing near-term challenges.
- Bedok Point, (12.1% of FY17’s expiring leases) could see negative reversions. This could be offset by healthy performance at Causeway Point (+10.6% reversions in 1QFY17), which accounts for 37.3% of FY17’s expiring leases by NLA.
- Asset occupancy (81.1% as of Dec 16) is expected to hit a low of 58% next month.
- The AEI, which commenced in Mar 16, will also see Northpoint’s NLA decline by 4% due to reconfiguration works. The project is expected to be completed in Sep 17.
Shopper traffic still not directly translating to tenant sales.
- Shopper traffic was up 2.7% yoy in 4QFY16, while tenant sales was down 10.1% yoy from Sep 16- Nov 16.
- Excluding the impact of AEI at Northpoint and tenant changeover at Changi City Point mall, tenant sales was still down 2.4% yoy. This dislocation echoes the previous quarter’s operating performance.
- Management noted that the retail sector continues to face headwinds, though they expect portfolio performance to remain resilient, owing to the relatively higher necessity spending (vs discretionary) at suburban malls.
- They also continue to express confidence in Northpoint’s expected performance post AEI, pointing to keen tenant interest in pre-commitments.