Frasers Centrepoint Trust - CIMB Research 2016-07-17: Volatility from Northpoint AEI

Frasers Centrepoint Trust - CIMB Research 2016-07-17: Volatility from Northpoint AEI FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust - Volatility from Northpoint AEI

  • 3QFY16 DPU was 26% of our FY16 forecast, boosted by the release of retained cashflow and more management fees in units; 9M16 DPU at 77% of our forecast.
  • Positive rental reversions offset by lower occupancy due to ongoing AEI works.
  • FY17-18 rental reversions to remain positive, more upside when NP AEI completes by end-FY17.
  • Healthy gearing of 28.5% with low refinancing.
  • Maintain Add, target price raised to S$2.25.

Results largely in line

  • As expected, FCT reported a 4.4% yoy drop in 3QFY16 revenue to S$45m while NPI fell 5.1% yoy to S$31.2m, impacted by the ongoing AEI works at Northpoint (NP), weaker performance at Changi City Point (CCP), as well as a slight expansion in cost ratio. However, distribution to unitholders and DPU was higher at S$27.9m and 3.04 Scts respectively, with the release of S$2.1m of cash retained from previous quarters and a higher proportion of management fees in units.

Positive rental reversions the bright spark

  • Although FCT experienced fairly flat shopper footfalls and a 1.8% dip in tenant sales during the quarter, rental reversions remained positive. 
  • FCT renewed 4.6% of portfolio NLA with an average 8.3% uplift from previous levels, led by Causeway Point, NP and Yew Tee Point which saw 7-10% higher rents over preceeding rents. However, this improvement was insufficient to offset the drop in income from lower portfolio occupancy of 90.8% due to the asset enhancement works underway.

Expect similar operating metric trends in 4Q

  • Rental uplifts should stay positive, moderated by lower portfolio occupancy as NP AEI picks up pace. 
  • In the long run, we expect occupancy and rental upside from NP post AEI to boost bottomline as it is integrated with Northpoint City
  • FCT has 38%/33% of rental income expiring in FY17/18. A sizeable proportion of this is in Causeway Point. Given its location and manageable occupancy cost, we expect positive rental renewals to occur. CCP’s occupancy should improve from 2QFY17 with a new anchor tenant.

Low gearing of 28.5%

  • Balance sheet is healthy, with gearing at 28.5%. FCT has recently refinanced its loans maturing in FY16 and achieved lower borrowing cost of 2.26%, with 78% of interest cost hedged. The trust has only a low 26%/8% of its loans due for refinancing in FY18/19. This puts it in a strong position to explore more inorganic growth drivers.

Maintain Add

  • We tweak our FY16-18F DPU numbers by 1-5% to factor in a more moderated rental growth and occupancy outlook on the back of the NP AEI. However, our DDM-based price target is raised to S$2.25 as we lower our cost of equity assumption to 7.4% (vs 8.1% previously). 
  • FCT is currently trading at 1.11x P/BV with a potential total return of 12%. 
  • Maintain Add. 
  • Risks to our rating are if there are delays to the AEI timeline or slower than expected leasing up rates.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-07-17
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.25 Up 2.10