Frasers Centrepoint Trust - DBS Research 2016-04-06: Northern Lights

Frasers Centrepoint Trust - DBS Research 2016-04-06: Northern Lights FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust - Northern Lights 

FCT is one of our top picks in the retail sector. 

  • We maintain our BUY recommendation, with a revised TP of S$2.11
  • While many other S-REITs are expected to face declining DPU over the next couple of years due to the slowing Singapore economy, FCT offers investors a steady DPU profile. This arises from FCT’s current conservative strategy of paying the majority of its management fees in cash, which enables FCT to temporarily increase payment of fees in units to sustain DPU. 

Near-monopoly of shopping malls in the north. 

  • Northpoint and Causeway Point together contribute c.71% of FCT’s NPI. Both malls have performed well in recent years, delivering strong tenant sales growth and rental reversions after successful AEI works. 
  • With limited retail supply in the north of Singapore and strong population growth (88% over the next five to ten years), we believe that FCT will be a beneficiary of increase in retail spending and demand for shop space. 

Earnings kicker upon integration of Northpoint with Northpoint City in 2018. 

  • Upon the completion of the AEI and integration of Northpoint and Northpoint City in 2018, the quality of FCT’s earnings will improve. Its position in the North will be further strengthened by having the destination mall to-be. 


  • Our DCF-backed TP is S$2.11, after imputing the Northpoint AEI. Stock offers a total return of > 10%. 

Key Risks to Our View: 

Near-term fall in NPI margin. 

  • As Northpoint’s average occupancy drops to 76% during its AEI period (Mar 2016-Sep 2017), some narrowing in the portfolio NPI margin is expected. 

Interest rate risks. 

  • About 74% of current borrowings have been hedged into fixed rate debt, distributions could therefore be impacted by near-term interest rate volatility. 

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-04-06
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.11 Same 2.11