Frasers Centrepoint Trust - CIMB Research 2017-10-25: On The Next Growth Path

Frasers Centrepoint Trust - CIMB Research 2017-10-25: On The Next Growth Path FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - On The Next Growth Path

  • Frasers Centrepoint Trust (FCT)'s 4QFY9/17 DPU of 2.97 Scts and FY9/17 DPU of 11.9 Scts in line with our and Bloomberg consensus estimates.
  • Better results driven by higher occupancy and positive rental reversion.
  • Northpoint North Wing (NPNW) post asset enhancement initiative (AEI) rental and leasing activity on track with management expectations.
  • Low gearing provides room for inorganic growth.
  • Maintain Add with a higher DDM-based Target Price of S$2.38.

A robust 4QFY17 

  • Frasers Centrepoint Trust (FCT)'s  4QFY9/17 DPU came in at 2.97 Scts, up 5.5% yoy. FY9/17 DPU of 11.9 Scts, up 1.2% yoy, was in line with expectations and made up 102% of our full-year forecast. The improved performance was due to higher rental income, improved occupancy at Northpoint North Wing (NPNW) and Changi City Point (CCP), and better cost management. 
  • FCT’s book value also benefited from organic improvement as well as a 25-60bp cap rate compression, and rose 5.3% to S$2.02/unit.

Higher portfolio occupancy, positive rental reversion 

  • Portfolio occupancy rose to 92% as at end-4QFY17, with a higher take up of 81.6% at NPNW upon the completion of its AEI, and 4.5%/3.5%-pt rise in Changi City PointBedok Point’s occupancy. 
  • Meanwhile, average portfolio rental reversion was up 8.3% in 4QFY17 and 5.1% in FY17 due to tenancy renewals and rejigging of tenant mix, with the exception of Bedok Point, which saw negative reversions of 21.3%. 
  • Nonetheless, the impact from the latter is minimal as the property makes up only a marginal 2.8% of FCT’s total FY17 NPI.

NPNW’s post AEI rental uplift on target with FCT’s expectations 

  • More importantly, FCT indicated that Northpoint North Wing (NPNW)'s average gross rent will improve by at least 9% post AEI; 95% of the space has been pre-committed. This will continue to drive forward bottomline growth, even after taking into account a slight reduction in NLA post AEI. 
  • Although portfolio shopper traffic and tenant sales dipped 9.9% and 2% yoy, respectively, in 4QFY17, we believe these operating metrics should improve once the integration with the South Wing is completed and NPNW stabilises.

Room for inorganic growth with gearing of 29% 

  • FCT has 29.2% of gross rental income expiring in FY18F and another 26.9% in FY19F, the bulk of which is at Causeway Point and Changi City Point
  • We anticipate FCT to continue enjoying positive rental reversions for its portfolio, given its still-manageable occupancy cost. In the medium term, the trust can also explore inorganic growth prospects given its healthy balance sheet and gearing of 29%.

Maintain Add 

  • We tweak our FY18-19 DPU estimates post results and introduce our FY20F numbers.
  • We continue to like FCT for its exposure to the more stable non-discretionary retail segment. We believe the trust will continue to deliver robust earnings growth as it has moved past the peak of AEI at NPNW. 
  • We lift our DDM-based TP to S$2.38 (cost of equity: 7.3%) as we roll our estimates forward. 
  • Downside risks could come from slower-than-expected rental reversion.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-10-25
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.380 Up 2.340