Frasers Centerpoint Trust - Maybank Kim Eng 2015-09-08: Vulnerable Valuations.


Vulnerable Valuations 

  • 60% of debt due for refinancing in FY9/16-17. 
  • FY9/15-17 cut by 1.9%/6.1%/8.1% 
  • TP SGD1.61, from SGD2.03 on switch from DDM to yield target of 7%. 
  • D/G to SELL. 

What’s New 

  • Factoring in 2015-17 market rent assumptions of -1%/-1%/+2% causes us to expect that rent reversions will surprise on the low side of 0-1.4%. As such, our FY9/15-17 DPUs are cut to 11.4/11.3/11.2 cts from 11.6/12.0/12.2 cts. 
  • Although we regard FCT’s mall portfolio as resilient, with little direct competition and virtual monopolies of catchment areas (Northpoint 27.8% NPI, Causeway Point 45.6% NPI), it is nonetheless buffeted by the poor retail environment and strong island-wide supply-side competition. 
  • Tenant remixing in response to such competition caused occupancy to fall QoQ from 97.1% to 96.5% in 3Q9/15. However, the disproportionate fall in DPU comes mainly from interest cost rising faster. 
  • While our models have already baked in benchmark rate increases of +25bp/+50bp/+50bp over 2015-17, FCT’s large refinancing commitments of 35% total debt in 2016 and 25% in 2017 causes outsized increases in interest cost to eat into DPU. 

What’s Our View 

  • We are changing our valuation methodology across our REITs from DDM to yield targets to better reflect the current de-rating environment. Our target for FCT is 7% vs 6.75% for CMT, 7.25% for MCT, and 7.5% for Starhill. 
  • FCT should trade at only a slight discount CMT given its resilient heartland portfolio. As FCT is currently trading at 5.9%, we find that it is priced for perfection and may disappoint if DPU falls. 
  • Applying our 7% target to FY16 DPU lowers our TP to SGD1.61 from SGD2.03. D/G to SELL.

Joshua Tan | http://www.maybank-ke.com.sg/ Maybank KE 2015-09-08
SELL Downgrade HOLD 1.61 Down 2.03