FRASERS CENTREPOINT TRUST
SGX:J69U
Frasers Centrepoint Trust (FCT) - Suburban Retail Heavyweight
Another strong quarter, as expected; BUY
- Frasers Centrepoint Trust’s 3Q18 DPU of SGD3.05cts, up 1.8% y-o-y, was led by stable occupancy and stronger rental reversions, and driven by Northpoint City North Wing post its AEI and Changi City Point - now a well-entrenched outlet mall.
- Following in-line results, our forecasts are unchanged, as well as DDM-based Target Price of SGD2.55 (WACC: 6.9%, LTG: 2.0%). We continue to favour Frasers Centrepoint Trust for its strengthening suburban mall footprint, and its valuation at 5.2% DPU yield as undemanding given visible growth drivers, strong balance sheet and potential acquisition catalysts.
- BUY.
Occupancy stable at 94.0%, +5.0% rental reversion
- Revenue and NPI jumped 10.9% y-o-y and 13.7% y-o-y, respectively, on better occupancies at Causeway Point (CWP) and Northpoint City North Wing (NCNW), and a +5.0% portfolio rental reversion. Stronger reversions were at NCNW, up 1.2% y-o-y, driven by 5% y-o-y increase for Causeway Point and Changi City Point. Portfolio tenant sales rose 3.4% y-o-y, as occupancy cost improved slightly (from 16.6% in FY17) to 16.4%, which supports a stronger rental outlook.
Double-digit growth at NCNW and CCP, increasing connectivity at CWP
- Northpoint City North Wing’s revenue and NPI accelerated further post its AEI, at +36.0% y-o-y and 59.9% y-o-y in 3Q18 as occupancy (excluding Yishun 10 retail podium) rose q-o-q from 94.0% to 95.2%. We see shopper traffic improving given the asset’s increasing relevance as a destination mall.
- Frasers Centrepoint Trust has successfully repositioned its Changi City Point asset to deliver 15.8% y-o-y and 22.3% y-o-y growth in revenue and NPI, as occupancies improved q-o-q from 90.6% to 92.6% with stronger shopper traffic from the opening of the Expo Downtown Line station driving tenant sales.
- At Causeway Point, Frasers Centrepoint Trust will undertake a SGD15.0m construction of an underground pedestrian link to Woods Square from end-Feb to Dec 2019 to boost accessibility to its largest mall.
Swing Factors
Upside
- Earlier-than-expected pick-up in leasing demand for retail space driving improvement in occupancy.
- Better-than-anticipated rental reversions.
- Accretive acquisitions or redevelopment projects.
Downside
- Prolonged slowdown in economic activity could reduce demand for retail space, resulting in lower occupancy and rental rates.
- Termination of long-term leases contributing to weaker portfolio tenant retention rate.
- Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2018-07-25
SGX Stock
Analyst Report
2.550
Same
2.550
