Frasers Centrepoint Trust - Maybank Kim Eng 2015-10-26: Priced for Perfection

Frasers Centrepoint Trust - Maybank Kim Eng 2015-10-26: Priced for Perfection FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust - Priced for Perfection 

  • 4Q9/15 results met expectations. Near-term growth to flatten, barring acquisitions. 
  • Rent reversions for FY9/16 could halve, as spot rents are declining. Though we increase DPU by 1.2-3% for better asset quality, our DPU is still flat to negative. 
  • 66% of debt due for refinancing in next two years cause for concern. Maintain SELL with higher SGD1.63 TP from SGD1.61, still based on 7% yield target. 

What’s New 

  • Since acquiring Changi City Point (CCP) in 4Q9/14, FCT’s revenue and NPI have been growing by double digits. As YoY comparisons now fully feature CCP, 4Q9/15 revenue and NPI growth slowed to +1.7% YoY (+0.8 QoQ) and +1.2% YoY (-3.5% QoQ). 
  • Growth from here could struggle to breach 2%, unless rent reversions improve from their current 6.3%. But we expect reversions to halve as spot rates are declining. OCR rents peaked in 4Q14 and have declined 2.5% YTD. 
  • FCT’s tenant sales/sf have also tapered 4.8%/3%/2.2%/2.1% in the last four quarters. This makes 6+% reversions hard to fathom. 
  • While FCT’s assets are solidly positioned, retail supply will be strong till 2018 (5.2m sf). 
  • Labour restrictions could continue to keep operating costs high for retailers. 

What’s Our View 

  • We find FCT priced for perfection, at 5.8% yield, it is trading at the extreme -1SD below cycle mean. There is room for disappointment as consensus DPU of 11.9cts for FY9/16 may be a tall order. 
  • Risks include weaker-than-expected rent reversions and debt due for refinancing in FY9/16-17 (39% and 27%), amid higher interest rates. 
  • Maintain SELL with TP up slightly to SGD1.63 from SGD1.61 after adjusting DPU. This remains based on a 7% yield target applied to FY9/17 DPU.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-10-26
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 1.63 Up 1.61