Frasers Centrepoint Trust - Phillip Securities 2016-07-18: Resilient amidst the generally lacklustre retail trends

Frasers Centrepoint Trust - Phillip Securities 2016-07-18: Resilient amidst the generally lacklustre retail trends FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust - Resilient amidst the generally lacklustre retail trends

  • Gross Revenue and NPI dropped due to commencement of AEI to Northpoint in 2Q16. 9M Gross Revenue and DPU came in at 75% and 77% of our FY16 estimates.
  • DPU maintained despite drop in distributable income, due to management taking bigger portion of management fees in shareholder units instead of cash.
  • Tenant sales generally flat, except at malls undergoing AEI and tenant readjustment.
  • Strong rental reversions underpinned by high reversion of 9.3% at Causeway Point.
  • Maintain Neutral on the back of recent run up in prices.



WHAT'S IN THE NEWS?


DPU maintained despite drop in distributable income, due to higher proportion of management fees paid in units. 

  • 50% of 3Q16 management fees was paid in shareholder’s units (vs 20% in 3Q15), freeing up more cash for distribution. 
  • A similar case happened during the previous Causeway Point AEI, when management took 100% of fees in units, with the ultimate intention to smooth out DPU growth.

Tenant sales generally flat, except at malls undergoing AEI and tenant readjustment.

  • With the exception of Northpoint (AEI), Changi City Point (Ongoing transition to new anchor tenant), and Bedok Point (Tenant mix re-adjusting), tenant sales at the other malls are relatively stable. 
  • While FCT’s tenant sales have been relatively flat, they have outperformed the sector-wide lacklustre retail sales trends in recent times. This is especially so for the dominant malls in towns with good surrounding catchment crowd such as Causeway Point.

Update on post Quarter End Capital Management Activities. 

  • Following the refinancing of the S$136m secured bank loan on 4 July 2016, FCT has negligible debt expiry in FY16, 26.1% in FY17 and 59% of borrowing are on fixed interest rates. 
  • Management opined that interest rates are likely to stay low and thus there is no hurry to hedge the rest of debt to fixed interest rates. Management aims to consistently keep a minimum of 50% of debt hedged on fixed interest rates at all times.


INVESTMENT ACTION

  • We maintain our NEUTRAL call, forecasts and DDM-derived target price of $2 with the recent run-up in prices.




Tan Dehong Phillip Securities | http://www.poems.com.sg/ 2016-07-18
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.00 Same 2.00


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