Frasers Centrepoint Trust

OCBC on 20 Jul 2012

Frasers Centrepoint Trust’s (FCT) 3QFY12 DPU of 2.6 S cents (+33.3% YoY) was above our expectations. The strong performance was achieved mainly on the back of a 60.9% NPI growth by Causeway Point (CWP) and S$2.0m NPI contribution from newly-acquired Bedok Point. During the quarter, we note that FCT continued to track positive rental reversions, where rental rates of new leases were 27.2% higher than preceding leases on average (2Q: +11.0%). This reflects continued strong demand for suburban retail space, in our view. We now re-jig our FY12-13 forecasts to reflect the better-than-expected results. This in turn raises our fair value from S$1.74 to S$1.89. Maintain BUY.

3QFY12 results exceeded expectations
Frasers Centrepoint Trust (FCT) turned in a good set of 3QFY12 results last evening. NPI was up 32.1% YoY to S$24.6m, while distributable income grew by 37.1% to S$20.2m. The strong performance was achieved mainly on the back of a 60.9% NPI growth by Causeway Point (CWP) and S$2.0m NPI contribution from newly-acquired Bedok Point. For the quarter, DPU came in at 2.6 S cents (+33.3% YoY), partially boosted by distribution of S$1.2m which was retained in previous quarters. Together with 1HFY12 DPU of 4.7 S cents, 9MFY12 DPU totaled 7.3 S cents, forming 76.8% of our and consensus FY12 DPU projections.

Improved operating statistics
After dipping 4.0ppt in prior quarter, FCT’s portfolio occupancy as at 30 Jun improved marginally to 93.7%. The re-opening of the food court in May, we note, was the primary driver for the better number. This was somewhat offset by lower occupancy at CWP (down 3.6ppt QoQ to 87.8%) as refurbishment works commence on the fifth and seven floors. However, management reiterated that the asset enhancement initiative at CWP is in its final phase and that the mall is likely to be fully occupied when the project is completed in Dec 2012. Additionally, FCT continued to track positive rental reversions, where rental rates of new leases were 27.2% higher than preceding leases on average (2Q: +11.0%). This reflects continued strong demand for suburban retail space, in our view.

Retain BUY with higher fair value
Due to the better-than-expected results, we now re-jig our FY12-13 forecasts to reflect better occupancy and rental rates. This in turn raises our fair value from S$1.74 to S$1.89. We continue to like FCT for its pure suburban exposure, strong execution and sturdy financial position. We believe the injection of Changi City Point may happen in the next fiscal year, as its leases appear to have stabilized (though business park segment has yet to obtain TOP). This may provide potential for further DPU expansion. Maintain BUY.