Thursday, 24 April 2014

Property - S-REITs: Industrial REITs are better than retail REITs

UOBKayhian on 24 Apr 2014

Results were in line with expectations, though the Industrial REITs (MINT and Cache) fared better than the Retail REITs (CMT & FCT), which reported a fall in shoppers traffic and weakness in tenant sales. MINT is developing alternative growth avenues with two AEIs and a BTS completed in FY14. FCT’s Changi City Point acquisition is awaiting SGX regulatory approval. Cache embarked on its first BTS ramp-up warehouse for DHL. We prefer the following segments/stocks in order of preference: a) Office (CCT & Suntec), b) Hotel (CDREIT), c) Industrial (MINT), and d) Retail (FCT). Maintain OVERWEIGHT.

Frasers CentrePoint Trust (FCT SP/BUY/Target: S$2.15)
Rental renewals signed during the quarter registered a 9.3% increase over the preceding leases driven by Causeway Point (9.7%) and Northpoint (10.9%). Worst is over for Bedok Point. Occupancy at Bedok Point is projected to recover to above 95% in 2H14 as new tenant leases commence (from 77% currently for the repositioned mall focused on F&B (>40%) and learning/education). Passing rents of about S$9 psf pm are compelling compared to about S$18 psf pm for the opposite Bedok Mall Management views the traffic diversion to the newly opened malls in Jurong among the factors that led to a 7.6% decline in shopper traffic aside from the AEI works at Bedok Point and Causeway Point. Changi City Point acquisition is awaiting SGX regulatory approval.

Acquisition will be ~1% accretive to FY15 DPU assuming 60/40 debt/equity funding. Expect further upside from initial acquisition yield of 5.0-5.5% as Changi City Point enters into its first lease renewal cycle. Maintain BUY with an unchanged target of S$2.15 based on DDM.

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