Frasers Centrepoint Trust - Phillip Securities 2018-07-27: Steady As She Goes

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FRASERS CENTREPOINT TRUST SGX:J69U

Frasers Centrepoint Trust - Steady As She Goes

• FCT’s 9MYTD NPI and DPU were in line with our forecast, at 75% of our FY18e forecast.
• Northpoint City North Wing (NPNW) main growth driver for portfolio occupancy and positive portfolio rental reversion.
• Percentage of debt hedged on fixed rates increased to 64% with all-in cost of debt maintained at c.2.5%.
• Maintain NEUTRAL with higher Target Price of S$2.15 (prev. S$2.14).

The Positives

+ Overall portfolio occupancy stable at 94% as NPNW continues to fill up post-AEI.

• Occupancy at NPNW currently at 95.2%, compared to pre-AEI level of 65.9% a year ago, and is expected to improve to 97% by the end of FY18 after factoring in pre-committed leases. Changi City Point had also seen improved occupancy, from 90.6% to 92.6% q-o-q.

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+ Overall rental reversion maintained at 5% driven largely by NPNW.

• Portfolio rental reversion of 5% on par with FY17 rental reversions. A tenant within the financial institution sector had taken over a large lease next to its existing space, which was initially due for renewal during the quarter. 
• The renewed lease accounted for c.50% of NPNW’s renewed NLA and was the main driver for the mall’s +25.8% rental reversion in 3Q18.

+ Increased percentage of debt hedged while keeping all-in cost of debt in check.

• Subsequent to the quarter, FCT had increased its proportion of debt on fixed interest rates to 64% (30 Jun 2018: 55%) while keeping all-in cost of debt largely in check, at 2.5%.

The Negatives

- Tenant sales was lower y-o-y overall in the single-digit percentage range, excluding NPNW and CCP.

• NPNW and CCP lifted portfolio tenant sales to 3.4% y-o-y. There has not been any y-o-y improvement in tenant sales at the other malls for two quarters. Portfolio occupancy cost has crept up to 16.3% from 15.3% in FY15, in part due to NPNW’s AEI. 
• We opine that tenant sales would need to catch up fast enough to ensure sustainable rental growth.

Outlook

• FCT will deploy S$15mn to develop an underpass linking Causeway Point to the upcoming Woods Square. Works will last from end-February 2019 to December 2019 and space carved out for this walkway will be retained under FCT’s reserve GFA bank for future expansion.
• While there will be a temporary dip in occupancy during this period, the underpass will bring about improved connectivity and expand the catchment area for Causeway Point (48% of portfolio NPI).

Maintain NEUTRAL with higher Target Price of S$2.15 (prev S$2.14)

• Our target price translates to a FY18e yield of 5.4% and a P/NAV of 1.11.
• There have been adjustments on assumptions on rental reversion rates and financing costs, following a change in analyst.

Tara WONG Phillip Securities Research | https://www.stocksbnb.com/ 2018-07-27

SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.15 UP 2.140