Frasers Centrepoint Trust - OCBC Investment 2018-01-24: Healthy Start To FY18

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FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Healthy Start To FY18

• Frasers Centrepoint Trust (FCT) 1QFY18 DPU rose 3.8% y-o-y.
• Rental reversion +3.3% excluding Bedok Point.
• Raise Fair Value and maintain BUY.

1QFY18 results in-line with our expectations 

• Frasers Centrepoint Trust (FCT) reported a decent set of 1QFY18 results which met our expectations. Gross revenue and NPI rose 8.7% and 9.1% y-o-y to S$47.9m and S$34.5m, respectively, with the latter forming 24.8% of our FY18 forecast. 
• Growth was driven largely by a rebound in revenue at Northpoint City North Wing (NPNW) following the completion of its major AEI. 
• DPU for the quarter came in at 3.00 S cents, representing y-o-y growth of 3.8% and this accounted for 24.6% of our full-year forecast. 
• FCT elected to take 50% of its management fees in units (1QFY17: 70%), and will likely transition back to its historical practice of taking 20% of its management fees in units to prevent longer term dilution to unitholders.

Operating metrics largely resilient with exception of Bedok Point 

• Frasers Centrepoint Trust (FCT)’s portfolio occupancy stood at 92.6% (+0.6 ppt q-o-q), led by the 5.2 ppt rebound in occupancy at Northpoint City North Wing (NPNW) to 86.8%, as at 31 Dec 2017. 
• Although this was slower than our expectations, we understand that there was a delay in the opening of stores for some of the tenants. However, we can take comfort that 99% of the reconfigured areas at NPNW has been leased and handed over to tenants. 
• Management also achieved its target of securing a 9% increase in average gross rental rates for the mall as compared with the pre-AEI period. 
• Overall portfolio rental reversion came in at 1.0% due to the drag from Bedok Point (BP), which registered negative rental reversions of 31.2%. Excluding BP, average rental reversion for the portfolio would have increased 3.3%.

Maintain BUY 

• Looking ahead, we expect operational improvement at Northpoint City North Wing and Changi City Point as management ramps up the occupancy at these two malls. 
• Coupled with a more positive consumer sentiment (Nov retail sales rose 5.3% y-o-y which was the strongest in nearly two years) and further re-rating in the S-REITs sector, we deem it appropriate to lower our cost of equity assumption to 6.5% from 6.7%. This is also supported by FCT’s still low aggregate leverage ratio (29.4% as at 31 Dec 2017). 
• Consequently, our fair value estimate increases from S$2.40 to S$2.49. Maintain BUY.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2018-01-24

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.49 Up 2.400