Frasers Centrepoint Trust - UOB Kay Hian 2017-10-26: 4QFY17 Results Of FCT In Line

Frasers Centrepoint Trust - UOB Kay Hian 2017-10-26: 4QFY17 Results Of FCT In Line FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - 4QFY17 Results Of FCT In Line

  • Results of Frasers Centrepoint Trust (FCT) in line with our expectations. 
  • The integration works at Northpoint is nearing its final stages and is resulting in improved occupancy and rental income contribution to the overall portfolio. 
  • Maintain BUY on FCT with a raised target price of S$2.43. 
  • Maintain OVERWEIGHT on sector.

Frasers Centrepoint (FCT SP/BUY/S$2.24/Target:S$2.43)

  • Results in line with expectations; maintain BUY with a raised target price of S$2.43 (from S$2.26), based on DDM (required rate of return: 6.3%, terminal growth: 1.8%). This mainly factors in the DPU accretion from Northpoint AEI and 0.3% increase in terminal growth rate on better growth prospects. 

4QFY17 DPU of 2.97 S cents, up 5.5% yoy

  • The quarter saw gross revenue and NPI increase 8.1% yoy and 10.0% yoy, respectively, due mainly to higher rental income and improved occupancy at Northpoint North Wing (NPNW). Causeway Point and Changi Point also grew 2.5% yoy and 13.6% yoy respectively, contributing to the strong 4QFY17 results. 
  • Results were in line with expectations, with FY17 coming in at 101.7% of our full-year estimates.

Positive rental reversions at +8.3% in 4QFY17

  • Positive rental reversions at +8.3% in 4QFY17, with Causeway Point accounting for 84.4% of the leased area renewed in 4QFY17. 
  • Other than Bedok Point, YeeTee Point and Yishun 10 which had no renewals, there were positive reversions at Causeway Point (+7.6%), NPNW (+24.4%), Changi City Point (+7.4%), and Anchor Point (+2.1%).

Gearing declined qoq to reach 29.0% (3QFY17: 30.0%). 

  • 4QFY17 borrowing costs came in at 2.3%, increasing only marginally (+0.1%) as compared with the previous quarter.

Optimism from Northpoint pre-commitments. 

  • The integration works at Northpoint City South Wing are in its final stages, with more than 95% of the reconfigured areas being leased and handed over to the tenants. 
  • By the end of FY17, Northpoint’s occupancy had increased 10.7ppt yoy to 81.6%, while overall portfolio occupancy increased 2.6ppt yoy to 92.0%.

Resilient despite structural challenges. 

  • Average prime retail rents islandwide stabilised at S$24.75psf/month, amid the challenging retail environment with landlords becoming more flexible in providing concessions to entice new tenants and being less selective in terms of tenant profile. 
  • Downward pressure on retail rents is likely to continue in 2017/18 with a further 0.60m sf and 1.62m sf of new supply coming on-stream in 4Q17 and 2018 respectively. 
  • Management noted that although the general retail sector continues to face structural challenges, FCT’s well located suburban malls continue to remain resilient.

Vikrant Pandey UOB Kay Hian | Loke Peihao UOB Kay Hian | http://research.uobkayhian.com/ 2017-10-26
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.43 Up 2.260