Frasers Centrepoint Trust (FCT) - UOB Kay Hian 2018-01-24: 1QFY18 Results In-line

REITs − Singapore - UOB Kay Hian 2018-01-24: 4QFY17 Results: KREIT (Below), 1QFY18: FCT (In-line), 3QFY18: MINT (In- Line) FRASERS CENTREPOINT TRUST J69U.SI

REITs − Singapore - 4QFY17 Results: KREIT (Below), 1QFY18: FCT (In-line), 3QFY18: MINT (In- Line)

  • Keppel REIT (KREIT), Frasers Centrepoint Trust (FCT), and Mapletree Industrial REIT (MINT) have reported their latest quarterly results. Frasers Centrepoint (FCT)’s results were in-line, mainly due to positive contributions from the Northpoint City North Wing. 
  • Maintain BUY on FCT with a target price of S$2.43. 
  • Maintain OVERWEIGHT on the sector.

Frasers Centrepoint Trust (FCT SP/ Rating: BUY/ Target Price: S$2.43) 

Results in-line with expectations; maintain BUY 

  • Results in-line with expectations; maintain BUY with an unchanged target price of S$2.43, based on DDM (required rate of return: 7.4%, terminal growth: 2.0%). 
  • FCT reported a 1QFY18 DPU of 3.0 S cents, down 3.8% y-o-y. The quarter saw gross revenue and NPI increase by 8.7% and 9.1% respectively, driven mainly by the 39.5% y-o-y revenue growth from Northpoint City North Wing, following asset enhancement works and improvement in occupancies at the mall. Causeway Point and Changi City Point also grew their revenue by 1.9% and 5.8% respectively. 
  • Results were in-line with expectations, with 1QFY18 accounting for 24.6% of our full-year DPU estimate.

Positive rental reversions at +1.0%. 

  • Rental reversions would have been +3.3% if not for Bedok Point, which registered a negative rental reversion of 31.2%.
  • Gearing increased 4bp q-o-q to reach 29.4%. Borrowing costs remained constant compared to the previous quarter’s 2.4% gearing.

Uplift from Northpoint City North Wing in FY18. 

  • The integration works with Northpoint City South Wing has been completed with 99% of the reconfigured areas leased and handed to tenants. Consequently, Northpoint has also enjoyed an improvement in occupancy (+5.2ppt q-o-q), in-line with management expectations.

Retail rents expected to recover going forward. 

  • Prime retail rents in Orchard Road and the suburban segment stabilised at S$31.30 (0%qoq, -2.6% y-o-y) and S$28.80 psf/month (0% q-o-q, -1.9% y-o-y) respectively, according to CBRE. They noted that retail rents have not seen any significant recovery, although it is believed that the retail segment will recover in time on the back of strong economic growth boosting retail sales and an influx of tourists. 
  • Regardless of the cyclical recovery, and continued challenges from structural threats of the e-commerce, management believes that its suburban malls will continue to be resilient.

Vikrant Pandey UOB Kay Hian | Loke Peihao UOB Kay Hian | http://research.uobkayhian.com/ 2018-01-24
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.430 Same 1.430
BUY Maintain BUY 2.430 Same 2.430
HOLD Maintain HOLD 1.880 Same 1.880