Frasers Centrepoint Trust - RHB Invest 2016-10-24: Catalysts In Sight Despite Tough Retail Market

Frasers Centrepoint Trust - RHB Invest 2016-10-24: Catalysts In Sight Despite Tough Retail Market FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Catalysts In Sight Despite Tough Retail Market

  • We believe Frasers Centrepoint Trust’s (FCT) suburban retail mall portfolio will be able to weather the current challenging retail environment with a proactive management team in place. Key catalysts are: 
    1. Growth from yield accretive acquisitions; 
    2. AEI works transforming Northpoint mall; 
    3. Occupancy improvement in Changi City Point mall.
  • Maintain BUY with an unchanged SGD2.22 TP (4% upside). FCT remains our Preferred Pick among retail REITs.

Expect mid-single digit rental reversions in FY17. 

  • We expect FCT resilient suburban malls to see mid-single digit rental reversions in FY17 despite a challenging retail environment. FCT has about 39.6% leases (as % of gross rental income) expiring in current financial year. The bulk coming from its key malls – Causeway Point and Northpoint – faces relatively less competition and has a huge catchment population. 
  • In 4QFY16/FY16 FCT’s mall posted positive rental reversions of +4.6%/+9.9% YoY respectively.

Actively looking at accretive acquisition opportunities. 

  • With a low gearing of 28.3% providing a healthy debt headroom (~SGD500m), management has been actively looking at acquisition opportunities mainly in Singapore and Australia. It sees Waterway Point (1/3 stake owned by sponsor Frasers Centrepoint (FCL)) as a good fit to its portfolio in the near term and Northpoint City in the medium term. 
  • FCT also sees the possibility of opportunistic third party acquisitions in the current market as smaller players look to exit amid a tough retail climate.

Occupancy at Changi City Point to improve with new tenants moving in.

  • New anchor tenants supermarket giant “NTUC Finest” and Japanese retailer “Daiso” are expected to move in Changi City Point mall later this week pushing the current occupancy to slightly above 90%, from 81% and contributing positively in FY17. 
  • With the expected opening of the downtown line at its doorstep in early next year, we expect increased footfalls and higher tenant sales going forward thus benefitting long term growth.

Maintain BUY with unchanged TP of SGD 2.22. 

  • With a pro-active management team in place, we believe FCT’s suburban mall portfolio will be able to withstand challenges facing retail industry. 
  • Its low gearing also provides headroom for opportunistic acquisition-led growth in near-term. 
  • The stock offers FY17F-18F yields of 5.6% and 6% respectively.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-10-24
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.22 Same 2.220