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

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 

1QFY16 results met our expectations 

  • 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. 

Robust rental reversions, but occupancy dipped 

  • 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. 

Maintain BUY 

  • 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