Frasers Centrepoint Trust - RHB Invest 2016-07-18: Defensive Shelter In a Low Yielding Environment

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FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust - Defensive Shelter In a Low Yielding Environment

• We believe investors will continue to favour FCT’s suburban mall portfolio with the ongoing global hunt for stable yield instruments. 
• Maintain BUY with a SGD2.22 TP (5% upside). It posted strong rental reversions of +8.3% for 3QFY16 (Sep), reiterating the resilience of suburban malls. 
• Next growth catalysts will be:
  1. The uplift from completion of AEIs;
  2. Potential acquisitions from its sponsor.
• It remains our Top Pick among the SREITs.

Northpoint AEI – progressing well. 

• The first phase of Northpoint’s asset enhancement initiative (AEI) is progressing well, with management achieving better-than-forecasted occupancies for the quarter (actual ~82% vs expected ~73%), as tenants have opted to lease despite the ongoing works. 
• Occupancies are expected to dip slightly in 4QFY16 as works progress. Once completed in Sep 2017, we expect the mall to benefit from a seamless connection with the upcoming retail component of Northpoint City, which is slated to be completed by 2018. 
• Given FCT’s good track record on AEIs, we are expecting ROI on refurbishment works of ~10%.

Changi City Point occupancies to improve by 1QFY17. 

• Occupancy at its Changi City Point mall slipped 8ppts to 81.3% in 3QFY16 due to the longer fitting period of an incoming tenant. 
• FCT noted that the new anchor tenant, a departmental store operator, will take another 2-3 months to move in and rentals are expected to start kick in from the last quarter. 
• Occupancies are expected to move back to 90% once the anchor tenant moves in.

Low gearing provides good headroom for accretive acquisitions. 

• FCT’s relatively low gearing of 28.5% among SREITs presents a headroom of ~SGD500m for fully debt funded acquisitions (assuming max gearing of 40%). Its sponsor has a strong pipeline of six malls, of which we believe Waterway Point (Punggol) could be a good fit in the near term, considering a huge catchment population and lack of strong competitors in the region.

Still a Top Pick, DDM-derived TP of SGD2.22. 

• FCT malls provide investors with a stable and resilient rental income, as investors continue to hunt for yield instruments amidst increasing uncertainties. 
• Maintain BUY.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-07-18

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.22 Same 2.22