Frasers Centrepoint Trust - OCBC Investment 2017-07-25: Some Softness But Expect Improvement Ahead

Frasers Centrepoint Trust - OCBC Investment 2017-07-25: Some Softness But Expect Improvement Ahead FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Some Softness But Expect Improvement Ahead

  • 3QFY17 DPU down 1.3 YoY.
  • Slight positive rental reversion of 0.4%.
  • Occupancy expected to pick up.

3QFY17 results in-line with our expectations 

  • Frasers Centrepoint Trust (FCT) reported an inline set of 3QFY17 results. 
  • Gross revenue fell 3.3% YoY to S$43.6m and this was largely attributed to the loss of income from the ongoing AEI at Northpoint. 
  • NPI declined by a smaller 1.3% magnitude to S$30.8m due to the write-back of provisions of property tax. 
  • DPU also declined by 1.3% YoY to 3.00 S cents, as S$1.4m of taxable income available for distribution which was retained in 1HFY17 was paid out during the quarter, versus S$2.1m of such income which was paid out in 3QFY16. Excluding this impact, FCT’s DPU would instead have increased by 1.5% YoY. 
  • For 9MFY17, FCT’s gross revenue and NPI came in lower by 4.2% and 3.5% to S$133.3m and S$95.0m, respectively. DPU of 8.93 S cents represented a mild decline of 0.2%, and formed 75.6% of our FY17 forecast.

Decline in shopper traffic and tenants’ sales moderated 

  • FCT’s portfolio occupancy held firm at 87.1% (- 0.1 ppt QoQ), as at 30 Jun 2017. Northpoint’s occupancy stood at 64.8%, due to the AEI as highlighted earlier. This is expected to be completed in Sep this year. Management has projected the mall’s occupancy to range between 69.1% to 79.0% from Jul to Sep, and is seeking to achieve an occupancy of at least 95% by the end of the year given keen interest from prospective tenants. Although Changi City Point’s occupancy fell 5.7 ppt QoQ to 84.0%, this was attributed to the fitting out of a food court tenant.
  • Occupancy has since improved to 87.4% following the commencement of operations on 1 Jul. There was still some softness in overall portfolio shopper traffic (-2.8% YoY to 23.9m) and tenant sales (-5.9% YoY for the period from Mar to May 2017), but the dip was moderate when compared to the preceding quarter.
  • Excluding Northpoint, FCT’s shopper traffic grew 3.7% YoY while tenants’ sales fell 3.3% YoY.
  • Rental reversions for 3QFY17 came in at 0.4% due to the drag from Bedok Point (-30.2%). Excluding Bedok Point, portfolio rental reversion was 5.4%.

Maintain BUY 

  • We update our model to incorporate more conservative occupancy and rental assumptions, but as we also lower our borrowing cost forecasts, our DPU projections remain largely intact. 
  • Maintain BUY and S$2.28 fair value estimate

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-07-25
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.28 Same 2.280