Frasers Centrepoint Trust - Phillip Securities 2016-04-25: Starting of the Northpoint Asset Enhancement Initiatives

Frasers Centrepoint Trust - Phillip Securities 2016-04-25: Starting of the Northpoint Asset Enhancement Initiatives FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust - Starting of the Northpoint Asset Enhancement Initiatives 

  • Frasers Centrepoint Trust’s (FCT) 2Q16 DPU came in at 3.04 SG cents, a 2.6% yoy increase. Gross revenue came in relatively flat, dragged down by lower contributions from Northpoint due to low occupancies arising from the ongoing AEI. 
  • Distributable income though, grew 6.7% yoy, primarily due to a higher percentage of management fees being paid out in units (50% vs 20% in 2Q15). This freed up more cash for distribution. 

Operational Updates 

  • 2Q16 shopper traffic (excluding Northpoint which is undergoing AEI) increased 4.2% yoy. 
  • Tenant sales for the 3-month period (Dec 2015-Feb 2016) grew 2.1% yoy. 
  • Gearing remains at 28.3% with average cost of borrowings dropping slightly to 2.286% (from 2.404% at FY15) due to favorable movement in interest rates which are unhedged to fixed rates. 
  • Occupancy dipped to 92%, but was primarily caused by the AEI in Northpoint. Otherwise, we are seeing improving occupancy at Bedok Point and stable occupancies at the other malls. 

Northpoint AEI updates 

  • The 18-month AEI commenced in March 2016 with completion expected in September 2017. 
  • Northpoint will remain open for business during the course of the AEI. Capital expenditure on this AEI is expected to be around S$60mn, to be funded by debt and internal resources. 
  • Even though the net lettable area of the mall is projected to be reduced by 4% due to reconfiguration of the mall, the “quality” of the retail space is expected to improve with newly reconfigured walkway designs directing more human traffic past the shops. 
  • Management aims to improve the average gross rental rate of Northpoint by approximately 9% upon completion of the AEI. 

Investment Action 

  • FCT’s 1H16 revenue and DPU came in at 50.8% and 51% of our FY16 forecasts respectively. 
  • We maintain our forecasts and DDM-derived target price of $2 but downgrade our call from ACCUMULATE to NEUTRAL on the back of the recent run-up in prices.

Tan Dehong Phillip Securities | http://www.poems.com.sg/ 2016-04-25
Phillip Securities SGX Stock Analyst Report NEUTRAL Downgrade ACCUMULATE 2.00 Same 2.00