Frasers Centrepoint Trust - OCBC Investment 2016-07-18: Still Delivering Robust Rental Reversions

FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - STILL DELIVERING ROBUST RENTAL REVERSIONS

Frasers Centrepoint Trust (FCT) reported its 3QFY16 results which came in within our expectations.
Gross revenue fell 4.4% YoY to S$45.0m but this was largely attributed to lower contribution from Northpoint (NP) which is currently undergoing an asset enhancement initiative (AEI). Correspondingly, NPI dipped 5.1% YoY to S$31.2m. However, DPU was flat at 3.04 S cents (+0.1% YoY) as S$2.1m of taxable income available for distribution which was retained in 1HFY16 was paid out during the quarter.
For 9MFY16, FCT’s gross revenue was down 1.8% to S$139.2m and this formed 71.8% of our FY16 forecast.
DPU of 8.949 S cents represented growth of 2.3% and accounted for 75.9% of our full-year projection.

During the quarter, FCT delivered average positive rental reversions of 8.3%, with strong growth led by NP (+10.3%), Causeway Point (+9.4%) and Changi City Point (+9.3%), but partially offset by Bedok Point (-0.3%). However, shopper traffic declined marginally by 0.4% YoY to 24.5m, while tenants’ sales slipped 1.8% for the period from Mar to May 2016.
Portfolio occupancy was also lower from 92.0% as at end Mar 2016 to 90.8% due largely to the AEI at NP and Changi City Point. The latter was due to a transitional vacancy as FCT is currently reconfiguring an anchor tenant space (~8% of mall’s NLA) before handing over to a new supermarket tenant.

We lower our FY16 and FY17 DPU forecasts by 0.9% and 2.9%, respectively, as we factor in the impact from the ongoing NP AEI.
Management expects occupancy at NP to range between 70% and 80% from Jul to Dec 2016 (average of 77%).
As a recap, the NLA of NP is projected to be reduced by 4% due to reconfiguration of the mall, but FCT expects average gross rental rates to be boosted by ~9% following the completion of the AEI.
As we lower our risk-free rate assumption from 3.0% to 2.4% given our expectation of a prolonged period of accommodative interest rate environment, our fair value estimate on FCT is increased from S$2.25 to S$2.32. Maintain BUY.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-07-18

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 2.32 Up 2.25