Frasers Centrepoint Trust - CIMB Research 2017-07-24: On Track

FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - On Track

Frasers Centrepoint Trust (FCT)'s 9M DPU of 8.93 Scts was in line with expectations at 76.2% of our FY17F forecast.
Occupancy remained stable qoq but Bedok Point rental renewals remain challenging.
We expect rental renewals at Causeway Point to continue to outperform in 4Q17F.

Frasers Centrepoint Trust (FCT)’s 3QFY9/17 DPU of 3.0 Scts was down just 1.3% yoy, despite a 3.3% yoy decline in revenue.
Utilities costs and property tax savings, as well as the distribution of part of the earlier retained cash, helped to moderate the dip.
For the 9M, DPU of 8.93 Scts, -0.2% yoy, was in line with expectations, accounting for 76.2% of our FY17F forecast.

3Q portfolio occupancy was stable qoq at 87.2%, with ongoing works at Northpoint (NP). However, rental reversion was up a marginal 0.4% over the previous period, dragged by Bedok Point, which posted a 30.2% decline on its renewal rents. Excluding this, the portfolio would have achieved a 5.4% rental uplift.
Causeway Point (CP) continued to outperform with a 5.8% rise in rents on renewal.
Shopper traffic (-2.8% yoy) continued to be affected by the NP AEI. Stripping out NP, it would have grown 3.7% yoy.

Looking ahead, there is 7.3% and 29.8% of gross income to be renewed in 4QFY17 and FY18, respectively. The bulk of the near-term leases are at CP.
Given the strategic location of CP and more optimal tenant mix, post AEI, we believe CP should continue to achieve higher rents.
At Changi City Point (CCP), the opening of the new food court in early Jul had lifted occupancy at the mall.

Meanwhile, AEI works at NP appear to be peaking, with occupancy projected to rise mom over the next few months, as it nears the scheduled Sep completion date. Take up of the reconfigured space has been strong, with 90% of the area pre-leased.
Management has guided that NP could exceed its targeted 9% rental uplift post AEI, even after taking into account a slight reduction in overall space. After accounting for the capex spend, gearing increased slightly to 30% from 29.4% a quarter ago.

We leave our FY17-19F DPU estimates unchanged and retain our Add rating. We continue to like FCT for its exposure to the more stable non-discretionary retail segment.
The balance sheet remains robust with a debt maturity profile of 2.6 years and interest cost at 2.2%.
As it moves past the peak of AEI for NP, we believe earnings could likely bottom out over the next two quarters.
Downside risks could come from a delay in completion of the NP AEI, while rerating catalysts include better-than-projected rentals.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-07-24

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