Frasers Centrepoint Trust - Phillip Securities 2018-01-24: Slowing Rental Reversions Need A Faster Retail Boost

Frasers Centrepoint Trust - Phillip Securities 2018-01-24: Slowing Rental Reversions Need A Faster Retail Boost FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Slowing Rental Reversions Need A Faster Retail Boost

  • Frasers Centrepoint Trust's1Q17 gross revenue and DPU at 23.6% and 24.5% of our estimates (excl. acquisitions).
  • Stabilisation of tenant sales (excl.Northpoint North Wing, NPNW), up 0.2% y-o-y.
  • Slower rental reversions at 1% (FY17: 5.1%), dragged down by Bedok Point.
  • Maintain Neutral with an unchanged DDM-derived target price of S$2.14.



The Positives

  • Portfolio tenant sales (excl NPNW) stabilised and up 0.2% y-o-y (vs 1-year trough of - 6.9% y-o-y in 2Q17): Tenant sales have seen a gradual improvement since 2Q17. Nonetheless, the improvement has been slightly slower than the overall recovery in the general retail sales index since June 2017 (July-Nov average excl. motor +2.9%).
  • Slight improvement in portfolio occupancy to 92.6%, supported by gradual resumption of occupancies at NPNW post-AEI: Occupancy at NPNW improved to 87% from 82% the prior quarter. The continued resumption in trading occupancy at NPNW is expected to drive revenue growth for FY18.


The Negatives

  • Slowing rental reversions at 1% (FY17: 5.1%) primarily dragged down by Bedok Point. Should this level of rental reversion level sustain throughout FY18, it will represent the weakest since listing.
  • Slow pick-up in improvements for underperforming malls: Changi City Point was a surprising underperformer with occupancy languishing at 86% (vs 88.5% at Sept 17) despite the opening of the Downtown Line 3 on 21 Oct 2017. Bedok mall remains weak with flat occupancy at 85%, although it only accounts for 3% of FY17 NPI.
  • Increase in financing costs due to drawing down of longer-term MTN: Financing costs jumped 19.4% y-o-y to S$4.9mn. This is likely due to the associated costs for the drawdown of longer-dated S$70mn MTN (due 2024) in the quarter. Weighted average debt expiry is up q-o-q from 2.34y to 2.7y and the average cost of debt edges up slightly q-o-q to 2.4%.


Outlook

  • Despite an improving retail outlook, rental reversions could remain in the low single digits as higher occupancy costs impede further significant hikes in rents. 
  • Ramp up in occupancies for NPNW is expected to drive FY18 revenue but this is likely mitigated by the gradual reduction in management fees taken in units (FY17: 70%) vs our forecasted FY18e of 25%.


Maintain NEUTRAL with an unchanged target price of S$2.14.

  • This translates to an FY18e yield of 5.7% and P/NAV of 1.06. This is in line with average post GFC yields of 5.7%.






Dehong Tan Phillip Securities | https://www.stocksbnb.com/ 2018-01-24
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.140 Same 2.140



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