Frasers Centrepoint Trust - CIMB Research 2016-10-21: Continued volatility from NP AEI

FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Continued volatility from NP AEI

4Q/FY16 DPU of 2.81/11.76 Scts in line with expectations at 23.9%/99.8% of our forecast.
Positive rental reversions offset by lower occupancies at NP and CCP.
Expect deceleration in earnings momentum to trough in FY17 as NP AEI is scheduled to be completed in Sep 17.
Low gearing provides deep capacity to explore inorganic growth prospects.

4QFY9/16 revenue was dragged 6% lower to S$44.6m (US$32.3m) due to lower contribution from Northpoint (NP) and Changi City Point (CCP). However, lower property expenses from utilities savings and reduced interest expense as well as a higher proportion of management fees in units led to a smaller 1.2%/1.5% dip in distribution income and DPU of 2.81 Scts.
For FY16, FCT reported DPU of 11.76 Scts, +1.3% yoy. It revalued its portfolio boosting book NAV to S$1.93/unit.

Although FCT experienced positive rental reversion of 4.6%/9.9% in 4Q/FY16, lower occupancy of 89.4% dragged on performance. NP is currently undergoing AEI and saw take-up sliding to 70.9% while at CCP, transitional vacancy from the changeover of an anchor tenant and tenant remixing lowered occupancy to 81.1%. This was partially offset by a better performance at Causeway Point (CP) and other malls. Bedok Point continues to see lower performance yoy.

We anticipate rental reversions to stay positive, although at a more moderated pace given the difficult retail environment. FCT has 39.2%/30.9%/23.8% to be renewed in FY17-19.
A sizeable proportion of FY17 expiries are in CP and given its niche location, we think the mall can grow its rents.
Also, we think vacancies at NP are expected to peak in 2HFY17 after seeing further retracement in occupancy in 1H17.
NP’s AEI is scheduled to end in Sep 17 and we understand there is good leasing interest post AEI.

The balance sheet is healthy with gearing at 28.3%. This puts the trust in a strong position to explore inorganic growth, both overseas and locally. Its Sponsor has two assets that could be injected when stabilised.
FCT’s borrowing cost remains low at 2.1% with 59% of interest cost hedged. The trust has S$218m (30%) of its loans to be refinanced in FY17.

We adjust our FY17-18 DPU estimates post results and introduce our FY19 numbers.Hence, our DDM-based target price is raised to S$2.28 as we roll forward our estimates.
FCT currently offers investors 5.6-5.7% FY17-18 DPU yield.
We think investor interest would pick up when the peak of NP’s AEI passes through in 2HFY17 and occupancies and earnings recover.
Downside risk could come from a delay in the completion of the NP AEI

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-10-21

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