Frasers Centrepoint Trust - OCBC Investment 2016-01-22: Favourable start to the year

FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust: Favourable start to the year

 1QFY16 DPU +4.4% YoY

 Positive rental reversions of 13.7%

 Slight dip in occupancy

Frasers Centrepoint Trust (FCT) started FY16 on a largely positive note, reporting a 4.4% YoY increase in its 1Q DPU to 2.87 S cents, despite a mild 0.2% decline in its gross revenue to S$47.1m.

The former constituted 24.3% of our full-year forecast.
If we add back S$1.4m (or 0.15 S cents) of taxable income available for distribution retained during the quarter, which we expect FCT to pay out in the subsequent quarters, adjusted DPU would have formed 25.6% of our FY16 projection.

The slight decline in FCT’s gross revenue was attributed largely to lower occupancy rates for its portfolio, which fell 1.9 ppt YoY to 94.5%. The main drag came from Bedok Point (-7.4 ppt) and Changi City Point (-2.5 ppt).
For Bedok Point, FCT managed to secure a gym operator as its new anchor tenant. Fitting out works are underway, with operations expected to commence in Mar this year. This would boost the mall’s occupancy to ~85%, but we believe the mall has not stabilised yet and there could still be some volatility in its occupancy rate ahead.
On a positive note, FCT achieved robust rental reversions of 13.7% for the quarter, despite the challenging leasing environment. We believe this reflects the resiliency of its malls.
Only Bedok Point saw negative rental reversions for 1QFY16. Shopper traffic grew 8% YoY to 26.4m, while tenants’ sales rose 1.9% for the period from Sep to Nov 2015.

Looking ahead, FCT will commence the AEI for Northpoint in Mar this year, and the entire process will span over an 18 months period until Sep 2017.
Based on management’s estimate, average mall occupancy will come in at around 76% from Mar to Sep 2016.
Pending further concrete details of this upcoming AEI, we opt to retain our estimates for now, although we are cognisant of the near-term impact to FCT’s income stream.
Maintain BUY and S$2.25 fair value estimate on FCT, which remains as one of our top picks within the S-REITs sector.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-01-22

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 2.25 Same 2.25