Frasers Centrepoint Trust - CIMB Research 2018-04-25: Steadily Growing

Frasers Centrepoint Trust - CIMB Research 2018-04-25: Steadily Growing FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Steadily Growing

  • Frasers Centrepoint Trust (FCT)'s 1HFY9/18 DPU of 6.1 Scts was within expectations, at 49% of our FY18F forecast.
  • 2QFY18 boosted by stronger occupancy and positive rental reversions.
  • We expect earnings growth to be driven by upcoming renewals in 2HFY18-19 and better showing from NPNW post asset enhancement initiative (AEI).
  • Healthy balance sheet; well positioned for inorganic growth.
  • Maintain ADD with unchanged Target Price of S$2.41.

2QFY18 results highlights

  • Frasers Centrepoint Trust (FCT)’s 2QFY18 performance was in line with gross revenue up 6.3% y-o-y to S$48.6m, thanks to higher portfolio occupancy and positive rental reversions. 
  • Distribution income of S$28.7m (DPU: 3.1 Scts) was 2.5% higher y-o-y and represented 98.1% payout ratio. 
  • For the half year, gross revenue rose 7.5% y-o-y while distribution income was up 3.4% y-o-y. DPU of 6.1 Scts made up 49% of our FY18F forecast.

Higher occupancy, positive rental reversions boost earnings

  • Topline growth was largely due to higher contributions from Northpoint North Wing (NPNW), Causeway Point (CP) and Anchorpoint and helped offset weaker performance from the rest of the assets. Portfolio occupancy grew 1.4% pts q-o-q to 94% due to higher take up at NPNW. 
  • The trust enjoyed a 9.1% positive rental reversion in 2Q, thanks to renewal of an anchor lease in CP. Excluding this, reversions would have been +2%. Shopper traffic rose 0.5% y-o-y while tenant sales dipped 1.2% y-o-y.

Expect continued positive renewals, better showing from NPNW

  • FCT has another 11.8% and 27.2% of gross rental income due for renewal in 2HFY18 and FY19. These are largely in CP, YewTee Point and Anchorpoint (FY19). 
  • With portfolio occupancy cost at c.16% as at end-FY17, we anticipate the trust to continue posting positive rental reversions when these leases are re-contracted. Gradual rise in physical occupancy of NPNW should also bolster earnings. According to management, the completed AEI at NPNW is expected to achieve a ROI of 10% or better, when stabilised.

Low gearing, room for inorganic growth

  • FCT’s gearing is one of the lowest amongst its peers, at 29.2% at end-2QFY18. About 56% of its debt are on fixed rate terms and average borrowing cost is 2.4%. Assuming a target gearing of 40%, FCT would have c.S$426m of debt headroom for new acquisitions. 
  • The trust is well positioned to explore inorganic growth prospects through its Sponsor’s pipeline in Singapore or overseas markets.

Maintain ADD

  • We leave our FY18-20F DPU estimates unchanged and maintain our DDM-based Target Price of S$2.41. We continue to like FCT for its exposure to the more stable non-discretionary retail segment. 
  • Upside risk could come from new acquisitions while downside risk could emerge from slower-than-expected rental reversions.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-04-25
SGX Stock Analyst Report ADD Maintain ADD 2.410 Same 2.410