Frasers Centrepoint Trust - CIMB Research 2016-12-05: Growing to new heights

Frasers Centrepoint Trust - CIMB Research 2016-12-05: Growing to new heights FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Growing to new heights

  • FCT is one of our top picks. We like its sub-urban resilience and acquisition upside.
  • Expect deceleration in earnings momentum to trough in FY17 as Northpoint’s AEI is scheduled to be completed in Sep 17.
  • Low gearing provides deep capacity to explore inorganic growth prospects.

Maintain Add with lower target price.

  • FCT has de-rated from a high of 1.14x P/BV in Sep to the current 1x P/BV, 1 s.d. below historical mean. 
  • On the back of the recent acquisition of the retail podium of Yishun 10 Cinema Complex for S$37.8m, we trim our FY17-19F DPU by 1%.
  • Due to across-the-board hike in Singapore Rf from 2.2% to 2.8%, we lower our DDM-target price (S$2.01) and maintain Add on the stock. FCT is one of our top picks within the sector. Its sub-urban resilience offers investors a 6% FY17 dividend yield, in line with historical mean. We think the stock could re-rate when the peak of Northpoint’s AEI passes through in 2HFY17, and occupancies and earnings recover.
  • Further catalysts could also come from acquisitions. Downside risk could come from a delay in the completion of the Northpoint AEI.

Positive rental reversion offset by lower occupancies

  • Although FCT experienced positive rental reversion of 4.6% in 4QFY16 and 9.9% in FY16, lower occupancy of 89.4% affected performance. 
  • Northpoint is currently undergoing AEI and saw take-up sliding to 70.9%.
  • Meanwhile, Changi City Point’s occupancy fell to 81.1% due to transitional vacancy from the changeover of an anchor tenant as well as tenant remixing.
  • This was partially offset by better performance at Causeway Point and other malls.
  • Bedok Point continues to see lower yoy performance.

AEI for Northpoint to peak in 2QFY17

  • We anticipate rental reversions to stay positive, although at a more moderated pace of 0-3% as slowing retail sales would cap landlords’ ability to raise rents.
  • FCT has 39.2%/30.9%/23.8% to be renewed in FY17-19F. A sizeable portion of FY17F expiries are in Causeway Point. Given its niche location, we think the mall would be able to increase its rents.
  • Also, we think the vacancies at Northpoint are expected to peak in 2HFY17.
  • Northpoint’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 or 30% of its loans due to be refinanced in FY17.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-12-05
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.01 Down 2.280