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

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.
  • Maintain Add with a higher target price of S$2.28.

4Q/FY16 results highlights 

  • 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.

Positive rental reversion offset by lower occupancies 

  • 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.

NP AEI to peak in 2QFY17 

  • 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.

Low gearing provides headroom for inorganic expansion 

  • 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.

Maintain Add 

  • 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
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.28 Up 2.250