Frasers Centrepoint Trust - RHB Invest 2015-10-23: Northpoint a Growth Engine After AEI

Frasers Centrepoint Trust - RHB Invest 2015-10-23: Northpoint a Growth Engine After AEI FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust - Northpoint a Growth Engine After AEI

  • FCT announced a set of stable 4QFY15 (Jun) and FY15 results as its portfolio booked 7.1% positive rental reversion for the quarter. 
  • Maintain BUY, with a DDM-derived TP of SGD2.22 (11.6% upside). 
  • While there was no change in the cap rate, investment properties were revalued upwards by +2.7%, mainly driven by stronger earning power from Causeway Point. 
  • We continue to like the REIT for its resilient earnings. 
  • We also see more growth opportunities for the portfolio as it announces its intention to refurbish Northpoint. 

 A good stable run in FY15. 

  • Frasers Centrepoint Trust (FCT) announced stable 4QFY15/FY15 DPU growth of 2.7%/3.8% YoY respectively, meeting ~97% of our full-year estimate. The growth was well supported by a respectable 7.1% positive rental reversion, ranging from 2.0% to 14.7% across the portfolio for the quarter. 
  • Overall portfolio occupancy dipped slightly to 96.0%, mainly due to the repositioning of Changi City Point (CCP) and Bedok Point (BP). 
  • We remain optimistic on the retail scene, as we observed an increase in shopper traffic and tenant sales for the quarter – at 8.4% and 2.1% YoY respectively. 

 Next growth engine – AEI on Northpoint. 

  • The REIT has also announced its intention to commence an asset enhancement initiative (AEI) on Northpoint in Mar 2016, which will be completed in phases over 18 months. 
  • We like management’s long-term view on this initiative as it intends to enable the mall to benefit from a seamless connection with the upcoming retail component of Northpoint City, which is slated to be completed by 2018. Given FCT’s good track record on AEIs, we are expecting ROI on refurbishment works of ~10%. 

 Still a Top Pick, with a TP of SGD2.22. 

  • We forecast its rental reversion to remain at 6-7% next year. We remain optimistic on the REIT as most of the leases expiring next year are to be renewed in its core assets. 
  • Management has also mentioned that occupancy costs for the REIT has dropped to below 16% (FY14: ~16%) – which would better position the REIT during renewal negotiations, in our opinion. 
  • We maintain BUY, with an unchanged DDM-derived TP of SGD2.22.

Ivan Looi RHB Research | Ong Kian Lin RHB Research | http://www.rhbinvest.com.sg/ 2015-10-23
RHB Research SGX Stock Analyst Report BUY Maintain BUY 2.22 Same 2.22