Frasers Centrepoint Trust - CIMB Research 2017-04-25: No Surprises

FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - No Surprises

2QFY9/17 DPU of 3.04 Scts in line with expectations, at 26% of our FY17 forecast.
Weaker portfolio occupancy as AEI at NP accelerates.
Lower shopper traffic and tenant sales due to seasonality factors and challenging retail landscape.

As expected, FCT reported a 2.9% yoy lower 2QFY17 revenue of S$45.7m, dragged down by asset enhancement initiative (AEI) works at Northpoint (NP). However, distribution income remained fairly flat at S$28m with 70% of manager’s fees paid in units and a smaller quantum of retained earnings of S$0.5m (vs. S$1m in 2QFY16).
DPU of 3.04 Scts made up 26% of our full-year forecast.

Portfolio occupancy slipped 4.1% pts to 87.2% as occupancy at NP fell to 60.7% during AEI works. This was partly offset by higher take up at Changi City Point (CCP).
FCT renewed 5% of its portfolio NLA in 2QFY17 at an average 4.1% higher rental over the preceding period, boosted by double-digit uplift at CCP and positive reversion across portfolio (except at Bedok Point).

FCT saw a 3.5% yoy and 7.7% qoq dip in shopper traffic within its portfolio. Tenant sales were 12.1% lower yoy.
Stripping out NP, tenant sales would have been a better -6.9% yoy. This was attributed largely to seasonality with a shorter gap between Christmas and Chinese New Year, at late Jan this year, as well as a competitive retail landscape.

Occupancy at NP is expected to bottom out at 57% in Apr and pick up in 2HFY17 to reach 82% by Sep 17. Pre-leasing activities are on track and management guided that its targeted 9% uplift in post AEI rent remains intact.
Meanwhile, it has 15.8% and 30.8% of rental income to be renewed in 2HFY17 and FY18, respectively. The bulk of the expiries are in Causeway Point and CCP, which should continue to see positive rental reversions, but achieving the same for Bedok Point would be challenging, in our view.

We maintain our FY17-19 DPU estimates and raise our DDM-based TP to S$2.20 as we factor in a lower Singapore discount rate assumption, in tandem with our sector-wide adjustment.
As FCT moves past the peak of AEI at NP, we believe earnings could likely have bottomed out as well.
In addition, with a low gearing of 29.4%, FCT is in a good position to explore inorganic growth prospects. We retain our Add rating.
Downside risk could come from a delay in completion of the NP AEI.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-04-25

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