Frasers Centrepoint Trust - Maybank Kim Eng 2016-01-22: Occupancy Risks

Frasers Centrepoint Trust - Maybank Kim Eng 2016-01-22: Occupancy Risks FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust (FCT SP) - Occupancy Risks 

In line; maintain SELL 

  • 1Q9/16 DPU formed 25% of our FY16F, in line and reinforcing our bearish expectations. 
  • Occupancy fell and could slip further due to Northpoint’s impending 18-month AEI. 
  • Maintain SELL and SGD1.63 TP, at our 7% yield target. 
  • Our estimates are under review. 

Occupancy decline capped revenue 

  • Despite impressive rent reversions of 13.7% from skilful tenant re-mixing, occupancy fell to 94.5% (4Q9/15: 96%), underscoring a tough operating environment. This capped revenue at SGD47.1m (-0.2% YoY, -0.9% QoQ). 
  • DPU at 2.87 Scts (+4.4% YoY, +0.4% QoQ) would have been flat if not for a 5.2% YoY drop in property expenses, led by lower energy costs. This boosted NPI (+2% YoY, +5.7% QoQ). 

Occupancy to dip further on 

  • Northpoint’s AEI The occupancy weakness was largely blamed on transitional vacancies at Northpoint (96.2%, 4Q: 98.2%), Changi City Point (88.6%, 4Q: 91.1%), and Bedok Point (76.8%, 4Q: 84.2%). 
  • Management expects a reversion to previous quarters’ levels by 3Q9/16. But an inability to lift CCP’s and BP’s committed occupancies beyond the low-90s and mid-80s testifies to a tough environment. 
  • Compounding occupancy risk is Northpoint’s impending 18-month AEI (Mar 2016 – Sep 2017) to spruce it up for integration with the upcoming Northpoint City (TOP in 2018). This is likely to hit occupancy further. 
  • Guidance suggests that the mall’s average occupancy may dip to 76% for the first 6 months of the AEI. Beyond that, we do not expect a swift reversion to the high 90s as prospective tenants may eye the new Northpoint City and be put off by the ongoing AEI. 

Interest cost & gearing to go up 

  • We have been guiding for higher interest costs for FY9/17 as 39% of its debt is due for refinancing by July. 
  • Management expects the same and intends to stagger debt maturities over a longer period to prevent the repeat of a high refinancing tower. 
  • Gearing is expected to climb because of AEI capex (pending tender, no guidance yet) as FCT may have to dip into its existing kitty to support DPU as Northpoint’s vacancies worsen.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-22
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 1.63 Same 1.63