Frasers Centrepoint Trust - CIMB Research 2016-04-22: Step by step

FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Step by step

Lower Northpoint occupancy erodes topline, cost savings helped support bottomline.
Positive rental reversion of 5.6% on healthy shopper traffic and tenant sales growth
S$60m Northpoint AEI projected to deliver a 9% rental uplift when completed

Funding cost to remain low post refinancing
Maintain Add with a slightly higher target price of S$2.10, remains pick amongst retail S-REITs.

FCT reported a 0.8% yoy dip in gross revenue to S$47.1m (on lower income from Northpoint) while NPI rose 0.4% yoy to S$33.7m on lower utilities charges and writeback of property tax provision.
Distribution income (DI) was up 2.8% yoy to S$27.9m after a S$1.1m retention, translating to a DPU of 3.04 Scts and making up 26% of our full year forecast. The higher uplift in DI is partly due to lower interest expense and higher proportion of manager’s fees taken in units.

FCT renewed 2.3% of its portfolio NLA in 2Q at 5.6% higher rents over pcp with a healthy 4.2% improvement in shopper traffic and 2.1% rise in tenant sales.
Across the portfolio, the best performing malls were Causeway Point (CP), Changi City Point (CCP) and Yew Tee Point.
It has a remaining 14.3% and 35.6% of NLA to be renewed in FY16 and FY17 and we expect the trust to continue enjoying positive rental reversions.

AEI works at Northpoint has commenced and accordingly, occupancy dipped to 81.7% at end Mar 16. The S$60m AEI will be carried out in 2 phases and will involve reconfiguring and relocating the food court and escalators to better integrate with Northpoint City from levels B2-L3 as well as upgrading some common facilities and play area.
Management guided that the mall occupancy is likely to dip to the low 70% before recovering towards the 80% mark over the next 6 months.
Post AEI, FCT expects a 4% reduction in NLA at the property and generate a 9% increase in average rents.

Balance sheet is healthy with gearing of 28.3%. The group recently refinanced part of its loans maturing in FY16 and achieved a lower average borrowing cost of 2.29% vs 2.4% at end FY15.
It has a remaining $204m to be refinanced over the next few months and we expect interest costs to remain low.

We tweak our FY16-18 numbers by 1-1.4% to adjust for the lower interest cost and factor in capex cost for the Northpoint AEI. Hence, our DDM-based target price is raised to S$2.10. Add rating is maintained with an estimated total return of 10.4%.
FCT remains our pick amongst retail S-REITs.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-22

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.10 Up 2.07