Frasers Centrepoint Trust - UOB Kay Hian 2018-04-26: 2QFY18 Results In Line

Frasers Centrepoint Trust - UOB Kay Hian 2018-04-26: 2qfy18 Results In Line FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - 2QFY18 Results In Line

  • Results of Frasers Centrepoint Trust (FCT) came in in line with expectations.
  • FCT’s portfolio saw higher contributions, driven by higher occupancy at Northpoint City North Wing (post completion of AEI works) and higher gross rents at Causeway Point.
  • Maintain BUY on FCT with an unchanged target price of S$2.43.


  • Results in-line with expectations; maintain BUY with an unchanged target price of S$2.43. Our valuation is based on a two-stage dividend discount model (required rate of return: 7.4%, terminal growth: 2.0%). 2QFY18 DPU of 3.10 S cents was up 2.0% y-o-y. Gross revenue and NPI grew by 6.3% and 6.9% respectively, mainly driven by Northpoint City North Wing (incl. contribution from Yishun 10 retail podium), as its occupancy improved significantly post-completion of AEI works, as well as higher gross rental revenue from Causeway Point. The results are in line with expectations, with 1HFY18 DPU coming in at 50.0% of our full-year forecast.
  • Positive rental reversions (+9.1%). Among the best performing malls were Causeway Point, Changi City Point, YewTee Point, and Anchorpoint, which saw positive reversions of 18.9%, 6.2%, 5.7%, 1.5%. The 18.9% reversion at Causeway Point was mainly due to lease renewal of an anchor tenant (which accounted for 78% of the leased area during the quarter). Excluding the anchor tenant’s renewal, reversion for Causeway Point would come in at around +2%. Meanwhile, overall rent reversions were dragged by Bedok Point (-12.5%) and Northpoint City North Wing (-6.1%).
  • Singapore retail rents nearing inflection. Prime retail rents in Orchard Road (+0.5% q-o-q, -1.9% y-o-y) and Suburban (+0.5%qoq, -1.0% y-o-y) recorded their first rise after 12 and 16 quarters respectively, according to CBRE. Supply of another 1.22m sf and 1.02m sf in NLA are expected to come on stream in 2018 and 2019 respectively.
  • The retail sector is buoyed by the stronger economic fundamentals (including strong growth in tourist arrivals and retail sales), with some landlords of prime shopping malls raising their asking rents after a three-year lull and some pop-up stores converting to permanent set-ups.
  • Gearing increased to 29.2% (vs 29.0% in 1QFY18). Assuming a maximum gearing of 40%, FCT still has potential debt headroom of c.S$496m.
  • 56% of borrowings on fixed rates (+1ppt q-o-q), still among the lowest for SREITs. The relatively lower proportion of fixed-rate borrowings (compared to other SREITs) exposes FCT to the prospects of higher interest expense, in view of the impending rate hikes.
  • Uplift from Northpoint City North Wing, which saw aggregate tenant sales (Dec 17- Feb 18) grow by 47.8% y-o-y, due to the increased occupancy (as compared to the same period last year when the mall was undergoing AEI works). Shopper traffic at Northpoint City is also still stabilising, as the South Wing opened only in Dec 17.
  • Changi City Point may face headwinds from 1H19, from opening of the Jewel. The mixed-use development at Changi Airport will cover a GFA of 1.4m sf and span 10 storeys. The Jewel will include gardens and attractions, a hotel, aviation facilities, and 300 retail and dining facilities. The opening of the Jewel has raised concerns over losing tenants and traffic at Changi City Point.
  • However, management believes that the mid-long term impact is limited, due to the different tenant-mix they cater to. The outlet stores, which are the main retail tenants at Changi City Point, are unlikely to move to the airports, as brands usually keep their outlet shops away from their flagship stores. Additionally, 44% of the tenants are F&B businesses catering to nearby office crowds, providing some degree of defensiveness.

Vikrant Pandey UOB Kay Hian | Loke Peihao UOB Kay Hian | http://research.uobkayhian.com/ 2018-04-26
SGX Stock Analyst Report BUY Maintain BUY 2.430 Same 2.430