Frasers Centrepoint Trust - UOB Kay Hian 2017-01-23: 4Q16 Results Of FCT In Line With Expectations

FRASERS CENTREPOINT TRUST J69U.SI

REITs − Singapore - 4Q16 Results Of CMT And FCT In Line With Expectations

The results of CMT and Frasers Centrepoint Trust (FCT) both came in in line with expectations. Both retail REIT managers have re-iterated a subdued outlook on the domestic retail sector.
Maintain HOLD on FCT with an unchanged target price of S$2.15.

CapitaLand Mall Trust (CMT) and Frasers Centrepoint Trust (FCT) have reported their quarterly results.

Results in line with expectations; maintain HOLD with an unchanged target price of S$2.15. Entry price: S$1.87.
Our valuation is based on a two-stage dividend discount model (required rate of return: 6.3%, terminal growth rate: 1.2%).
1QFY17 DPU of 2.89 S cents was up 0.7% yoy. 1QFY17 revenue and net property income declined 6.4% yoy and 5.7% yoy respectively mainly due to Northpoint’s AEI.
The higher DPU despite the NPI decline mainly resulted from the REIT manager accepting 70% of fees (base and performance) in units instead of cash compared to 20% last year.
The results were in line with our expectations, with 1FY17 DPU coming in at 24.8% of full-year forecast.

While management expects to see positive reversions in FY17, it has highlighted existing near-term challenges.
Bedok Point, (12.1% of FY17’s expiring leases) could see negative reversions. This could be offset by healthy performance at Causeway Point (+10.6% reversions in 1QFY17), which accounts for 37.3% of FY17’s expiring leases by NLA.

Asset occupancy (81.1% as of Dec 16) is expected to hit a low of 58% next month.
The AEI, which commenced in Mar 16, will also see Northpoint’s NLA decline by 4% due to reconfiguration works. The project is expected to be completed in Sep 17.

Shopper traffic was up 2.7% yoy in 4QFY16, while tenant sales was down 10.1% yoy from Sep 16- Nov 16.
Excluding the impact of AEI at Northpoint and tenant changeover at Changi City Point mall, tenant sales was still down 2.4% yoy. This dislocation echoes the previous quarter’s operating performance.
Management noted that the retail sector continues to face headwinds, though they expect portfolio performance to remain resilient, owing to the relatively higher necessity spending (vs discretionary) at suburban malls.
They also continue to express confidence in Northpoint’s expected performance post AEI, pointing to keen tenant interest in pre-commitments.

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2017-01-23

UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 2.150 Same 2.150