Frasers Centrepoint Trust - Phillip Securities 2017-07-25: Tenant Sales Remain Weak

Frasers Centrepoint Trust - Phillip Securities 2017-07-25: Tenant Sales Remain Weak FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Tenant Sales Remain Weak

  • FCT's 3Q17 results were within our expectations. 9M17 DPU at 74.4% of our FY17e DPU.
  • Suburban malls’ rentals continue to drop as evident from slowing reversions.
  • Tenant sales remain weak (-3.3% YoY excl. Northpoint) despite higher shopper traffic (+3.7% YoY).
  • Improved occupancies expected at Northpoint and Changi City Point by year end.
  • Maintain Neutral with a higher DDM-derived target price of S$2.14.



The positives 


+ Causeway Point (CWP) continues to support earnings: 

  • Contributing 53% of portfolio net property income (NPI), CWP was one of only two malls with positive YoY growth in NPI for 3Q17 (+5% vs portfolio -1.3%). 
  • Occupancy cost remains low (c.16.5%) at the mall despite a drop in tenant sales. (FCT FY16: 15.7%, CMT FY16: 19%).

+ Northpoint (NP) 90% pre-committed 2months from completion: 

  • Enhancement works is expected to complete on schedule in September 2017. Management guided that they are on track to achieve the targeted 9% increase in gross rents post-AEI, or even better.

+ Expo Downtown Line 3 to open 21 October 2017, adjacent Changi City Point (CCP) expected to see better occupancies: 

  • Occupancy at the mall has improved from 81.1% at FY16 to 87.4% as at 1 July 2017. As the new station opens, we expect CCP to recover from the 80+% occupancy rates it has suffered due to the construction works.


The negatives 


- Suburban malls’ rentals continue to drop as evident from slowing reversions: 

  • 3Q17 portfolio rental reversions at 0.4%, the weakest level for the year (1Q: 6.9%, 2Q: 4.1%).

- Higher portfolio shopper traffic (+3.7% YoY) at malls did not translate to higher tenant sales: 

  • Tenant sales remain weak (-3.3% YoY excl. NP), although this is an improvement from the prior 3-month period (-6.9% YoY excl. NP).


Outlook 

  • We expect retail sales and spot rents to recover by 2H17 and 1H18 respectively, though the recovery will be weak. 
  • With Northpoint and Changi City Point looking to perform better by year end post-AEI, and the opening of DTL3, the improved occupancies at these malls should support DPU. Together with CWP, these three malls contributed c.85% of NPI in 3Q17. 
  • DPU is expected to remain stable despite the improved operating performance as management reverts to taking lesser fees in units (leaving less cash for distribution).


Maintain NEUTRAL with a higher target price of S$2.14.

  • We raised our FY18e/FY19e DPU by 3.8%/4.7% to reflect the better operating performance of post-AEI-Northpoint and Changi City Point. Accordingly, our target price increases from S$2.04 to S$2.14. This translates to an FY17e yield of 5.6% and P/NAV of 1.11.




Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2017-07-25
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.14 Up 2.040



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