Frasers Centrepoint Trust - 1QFY17 ~ Good set of results despite challenging market
- We reiterate our BUY rating on Frasers Centrepoint Trust (FCT) as well maintain our forecast and DDM-derived TP of SGD2.22 (CoE: 7.4%, TG: 1.8%).
- The stock offers dividend yield of 6% based on FY17F dividend payout.
- 1QFY17 DPU increased 1% YoY to 2.89 cts, accounting for 24% of our full year forecasts.
- Gross revenue was lower 6% YoY mainly due to asset enhancement works at the Northpoint mall. However, distributable income increased 1.1% YoY as management took 70% of its management fees in units as compared to 20% a year before.
- Overall portfolio occupancy increased 0.9ppt QoQ to 91.3% as occupancies improved at the Changi City Point and Northpoint malls.
- Portfolio rent reversions remained positive (+6.9%) in spite of challenging market conditions with strong reversions at its key suburban malls - Causeway Point (+10.6%), Northpoint (+5.5%) and Changi City Point (+12.2%).
- About 27% of its leases (as % of gross income) are due for renewal in FY17. Despite retail sector headwinds, we expect FCT to post mid-single digit rental reversions due to defensive nature of its sub-urban malls.
- During the quarter, FCT acquired Yishun 10 retail podium (Nov 2016) which should start contributing to income from 2QFY17. We believe management could integrate this with its neighbouring Northpoint mall to enjoy better operational synergies.
- Shopper traffic across its malls improved 2.7% YoY and 7.5% QoQ. However, tenant sales (excluding Changi City Point and Northpoint) declined 2.4% YoY.
- Gearing ratio remains low at 29.7%, providing healthy debt headroom of more than SGD400m (assuming comfortable gearing of 40%) for further acquisitions.
- We believe FCT’s sub-urban mall portfolio and a proactive management will enable the REIT to weather a challenging retail outlook for 2017. Based on last closing price, the stock offers FY17F yield of 6%.
- Maintain BUY with an unchanged TP of SGD 2.22.