Frasers Centrepoint Trust - Maybank Kim Eng 2016-04-25: Low growth, premium valuations; Reiterate SELL

Frasers Centrepoint Trust - Maybank Kim Eng 2016-04-25: Low growth, premium valuations; Reiterate SELL FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust (FCT SP) - Low growth, premium valuations; Reiterate SELL 

2Q results. DPU outlook flat; competition rising 

  • Results are tracking our expectations of a flat outlook, with revenue/NPI/DPU at 51.1%/51.3%/50.9% of our full year estimates. 
  • We view Northpoint’s AEI and Bedok’s tenant re-mixing as responses to an increasingly competitive retail scene. 
  • Our DPU outlook remains unchanged and flat. 
  • Applied to our yield peg of 6.5%, we maintain SELL, with SGD 1.78 TP unchanged. 
  • FCT is currently trading at a premium valuation of 5.8% yield, which is below the -1SD (6.1%) from the mean. 
  • Our yield peg is at the mid-point between the -1SD and mean, to reflect our low growth view of the retail sector. 

Results negatively impacted by Northpoint AEI 

  • Gross revenue fell 0.8% YoY and 0% QoQ, as Northpoint’s occupancy fell to 81.7% (1Q: 96.2%). 
  • NPI however edged marginally higher, +0.4% YoY and QoQ, due to lower energy costs. 
  • Occupancies were stable at the other malls and Bedok managed to increase occupancy by 9.3pp to 86.1% by taking on a gym operator. Occupancy at Bedok should be volatile near-term due to tenant remixing, while Northpoint’s is likely to dip further next quarter before rising again. 
  • And the next FY could also be challenging for Northpoint as phase 2 of the AEI gets underway. 
  • Overall portfolio occupancy fell to 92% (1Q: 94.5%). 
  • Rent reversions have thus far averaged 12% at the half-year mark, though management has cautioned that this may not be representative of the current market due the small floor areas involved. 

DPUs to be supported mainly from fees in units 

  • Despite the drag on core revenues/NPI, DPU declared was 3.04 Scts (+2.6% YoY, 5.9% QoQ). This was due to a boost in distributable income aided by lower interest cost (c.SGD600k less YoY, 3m SOR fell 43% YTD), but mainly from c.50% of management fees taken in units. 
  • We had previously flagged that interest cost would rise, as 38% of debt is due for refinancing. However, this now appears to be an advantage in a negative interest rate/lower for longer environment. The main drag on DPU going forward should be the Northpoint AEI.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-25
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 1.78 Same 1.78