Frasers Centrepoint Trust

OCBC on 23 Jul 2015

Frasers Centrepoint Trust’s (FCT) 3QFY15 gross revenue jumped 14.3% YoY to S$47.1m, while DPU inched up 0.5% to 3.04 S cents. This was within our expectations. FCT experienced an encouraging 3.6% and 2.2% YoY growth in shopper traffic and tenants’ sales for its malls. Average rental reversions of 5.3% were achieved in 3QFY15, bringing 9MFY15 rental uplifts to 6.2%. Overall portfolio occupancy of 96.5% (-0.6 ppt QoQ) was largely dragged down by a lease expiry of an anchor tenant at Bedok Point (9% of NLA). Looking ahead, while FCT does not have any concrete acquisition targets in the near-term, it is exploring the option of carrying out asset enhancement initiatives at Northpoint, with a targeted double-digit ROI. We fine-tune our assumptions and ease our FY15-16F DPU forecasts slightly by 0.5%-1.9%, but we reiterate our BUY rating on FCT, with a marginally lower fair value of S$2.24 (previously S$2.27).

3QFY15 results met our expectations
Frasers Centrepoint Trust’s (FCT) 3QFY15 gross revenue jumped 14.3% YoY to S$47.1m due to stable organic growth and additional contribution from Changi City Point (CCP), which was acquired on 16 Jun 2014. NPI rose 12.8% YoY to S$32.9m, while DPU inched up 0.5% to 3.04 S cents. For 9MFY15, FCT’s gross revenue and DPU grew 16.1% and 4.1% to S$141.8m and 8.75 S cents, respectively. The latter constituted 74.1% of our FY15 forecast. If we add back S$0.5m of income retained in 9MFY15, which we expect to be distributed in 4QFY15, adjusted 9MFY15 DPU would have formed 74.6% of our full-year projection.

Operational trends still healthy
FCT experienced an encouraging 3.6% YoY growth in shopper traffic for its malls (excluding CCP), while tenants’ sales rose 2.2% YoY from Mar-May 2015, highlighting the resiliency of its portfolio amid softness in the retail industry. Average rental reversions of 5.3% were achieved in 3QFY15, bringing 9MFY15 rental uplifts to 6.2%. Although Anchorpoint’s rental reversion was -5.1% in 3QFY15, the space renewed made up only 1.7% of the mall’s NLA. With 20.5% of NLA expiring at Anchorpoint for the remainder of FY15, management assured us that the negative rental reversion in 3QFY15 was not representative of the sentiment at the mall, and remains optimistic on achieving positive rental reversions for the upcoming renewals. Overall portfolio occupancy stood at 96.5% (-0.6 ppt QoQ), with the drag emanating largely from a lease expiry of an anchor tenant at Bedok Point (9% of NLA). FCT is currently in negotiations with prospective tenants, including a gym operator.

Maintain BUY
Looking ahead, while FCT does not have any concrete acquisition targets in the near-term, it is exploring the option of carrying out asset enhancement initiatives at Northpoint, with a targeted double-digit ROI. We believe management will be able to achieve its target given its previous AEI track record at Causeway Point. We fine-tune our assumptions and ease our FY15-16F DPU forecasts slightly by 0.5%-1.9%, but we reiterate our BUY rating on FCT, with a marginally lower fair value of S$2.24 (previously S$2.27).

Frasers Centrepoint Trust

OCBC on 23 Apr 2015

Frasers Centrepoint Trust (FCT) reported gross revenue of S$47.5m and DPU of 2.963 S cents for its 2QFY15 results. This represented YoY growth of 15.9% and 2.9%, respectively, and was in-line with our expectations. Management managed to achieve positive rental reversions of 3.8% for 2QFY15. This was, however, softer than the 7.7% and 6.5% rental reversion figures recorded in 1QFY15 and FY14, respectively. The main drag came from Bedok Point. Overall portfolio occupancy remained resilient at 97.1%. Despite FCT’s strong share price performance YTD, we are reiterating our BUY rating and S$2.27 fair value estimate, which translates into potential total returns of 13.9%. We continue to like FCT for its strong balance sheet (gearing ratio of 28.6%; 87% of total debt hedged or on fixed rate basis) and defensive suburban malls portfolio.

2QFY15 results met our expectations
Frasers Centrepoint Trust (FCT) reported gross revenue of S$47.5m and DPU of 2.963 S cents for its 2QFY15 results. This represented YoY growth of 15.9% and 2.9%, respectively, driven largely by contribution from Changi City Point (CCP), which was acquired on 16 Jun 2014, and higher gross rents (+0.7%-5.0%) from all its other malls. For 1HFY15, FCT’s gross revenue jumped 17.1% to S$94.7m and formed 48.4% of our full-year forecast. DPU rose 6.2% to 5.713 S cents and constituted 48.4% of our FY15 estimate. If we take into account the S$1.4m (~0.15 S cents per unit) of income retained in 1QFY15, which we expect FCT to distribute in 2HFY15, adjusted 1HFY15 DPU would have formed 49.7% of our FY15 projection, well within our expectations.

Resilient performance, but signs of moderation
Management managed to achieve positive rental reversions of 3.8% for 2QFY15. This was, however, softer than the 7.7% and 6.5% rental reversion figures recorded in 1QFY15 and FY14, respectively. The main drag came from Bedok Point (BP), which registered a steep negative reversion of 31.4% due to one specific lease renewal. If we exclude BP, FCT’s rental reversion would have been 5.2%. Overall portfolio occupancy remained resilient at 97.1% (+0.7 ppt QoQ), as there were healthy improvements seen at Northpoint (+2.8 ppt to 99.1%) and BP (+3.4 ppt to 94.2%). The only decline came from CCP, which clocked in a slightly lower occupancy rate of 90.1% (versus 91.7% as at end 31 Dec 2014). 

Maintain BUY
FCT, which is one of our top picks within the S-REITs space, has experienced a 10.8% YTD appreciation in its share price, strongly outperforming the FTSE ST REIT Index’s 5.3% increase during the same period. Keeping our forecasts and S$2.27 fair value estimate on FCT intact, we still see potential total returns of 13.9%. Maintain BUY. We continue to like FCT for its strong balance sheet (gearing ratio of 28.6%; 87% of total debt hedged or on fixed rate basis) and defensive suburban malls portfolio.

Frasers Centrepoint Trust

OCBC on26 Jan 2015

Frasers Centrepoint Trust (FCT) started FY15 on a bright note, recording an in-line 10.0% YoY growth in its 1QFY15 DPU to 2.75 S cents on the back of a 18.3% increase in growth revenue to S$47.2m. Management recorded robust rental reversions of 7.7% for its entire portfolio, although remaining leases expiring in FY15 at Changi City Point may be renewed at softer rates given market conditions. FCT’s gearing ratio was unchanged at a healthy 29.3%, with 87% of its debt hedged or on a fixed rate basis (end FY14: 75%). We keep our forecasts intact given this set of in-line results. However, we are raising our fair value on FCT from S$2.08 to S$2.27 as we lower our cost of equity assumptions from 7.5% to 7.0%. This is to take into account FCT’s continued resilient and defensive portfolio performance, and strong financial position. Maintain BUY.

1QFY15 results in-line with expectations
Frasers Centrepoint Trust (FCT) started FY15 on a bright note, recording a 10.0% YoY growth in its 1QFY15 DPU to 2.75 S cents on the back of a 18.3% increase in growth revenue to S$47.2m. This constituted 23.3% and 24.1% of our full-year forecasts, respectively. If we include S$1.4m (0.15 S cents per unit) of income retained, which we expect FCT to distribute in 2HFY15, adjusted DPU would have formed 24.6% of our FY15 projection, in-line with our expectations. Growth was driven largely by contribution from Changi City Point (CCP) which was acquired in Jun 2014, as well as organic growth from its other assets, with the exception of Bedok Point (BP). Although revenue and NPI for BP declined 12.5% and 24.2% YoY, respectively, this property contributed only 4.2% of FCT’s 1QFY15 NPI.

Operational metrics highlight resiliency
Management recorded robust rental reversions of 7.7% for its entire portfolio, with growth underpinned by CCP (+10.7%), Causeway Point (+9.1%) and YewTee Point (+8.8%), with a slight drag coming from BP (-1.3%). Management sounded a word of caution, highlighting that lease negotiations at CCP had started several months back and market conditions has since become more challenging. Hence the 10.7% reversion figure should not be used as a benchmark for the remaining leases to be renewed. Nevertheless, only 9.5% of CCP’s NLA is expiring for the remainder of FY15. Portfolio occupancy fell slightly from 98.9% to 96.4%, but this was partly due to transitional vacancies (i.e. space that has already been committed but tenants carrying out fit out works). We thus expect occupancy to improve in the coming quarter. FCT’s gearing ratio was unchanged at a healthy 29.3%, with 87% of its debt hedged or on a fixed rate basis (end FY14: 75%).

Reiterate BUY
We keep our forecasts intact given this set of in-line results. However, we are raising our fair value on FCT from S$2.08 to S$2.27 as we lower our cost of equity assumptions from 7.5% to 7.0%. This is to take into account FCT’s continued resilient and defensive portfolio performance, and strong financial position. Maintain BUY.

Frasers Centrepoint Trust

UOBKayhian on 26 Jan 2015

FY15F PE (x): 18.3
FY16F PE (x): 18.3

Frasers Centrepoint Trust (FCT) reported 1QFY15 DPU of 2.75 S cents, (+10.0% yoy, - 1.3% qoq) its strongest first-quarter showing yet. The results are in line with our expectations with 1QFY15 DPU accounting for 23.9% of our full-year forecast. FCT’s latest operating asset, Changi City Point, registered the highest reversion rate within the portfolio, at 10.7% in 1QFY15. Over 50% of leases expiring in FY15 at Causeway Point and Northpoint were renewed in 1QFY15 at healthy reversion rates of 9.1% and 6.1% respectively. Downgrade to HOLD post the strong 13% yoy increase in the share price. Our target price of S$2.23 is based on DDM (required rate of return: 6.8%, terminal growth: 1.8%). Entry price is S$1.90.

Singapore Reits

OCBC on 19 Dec 2014

2014 has been a relatively solid year for the S-REITs sector in terms of both share price and financial performance. Looking ahead, market expectations point towards a hike in the Fed Funds target rate in 2Q15. This could result in volatility in the share prices of S-REITs. On a positive note, most REITs have buffered up their balance sheets, while hedging strategies have also been put in place. From a valuation standpoint, the FSTREI is trading above historical levels on a P/B basis, while the current yield spread of 4.0% is below the 7-year average of 4.7% (4.3% if we exclude the GFC period). We have OVERWEIGHT ratings on the office and retail REITs sub-sectors, and NEUTRAL ratings on the industrial, hospitality and healthcare REITs sub-sectors. Overall, we maintain NEUTRAL on the S-REITs sector. Our top picks are CapitaMall Trust [BUY; FV: S$2.20], Frasers Centrepoint Trust [BUY; FV: S$2.08] and Starhill Global REIT [BUY; FV: S$0.90].

Year in review
2014 has been a relatively solid year for the S-REITs sector. The FTSE ST REITs Index (FSTREI) has shown an appreciation of 7.8% YTD, outperforming the STI’s 2.4% increase during the same period. Operationally, we note that most REITs under OIR’s coverage have managed to report decent financial results for 9MCY14. Overall NPI, distributable income and DPU growth came in at 7.6%, 6.5% and 2.2%, respectively. From a regulatory standpoint, MAS released a consultation paper in Oct with proposals aimed at fostering stronger corporate governance practices, better aligning the interests of REIT managers and unitholders, as well as to provide REITs with more operational flexibility.

All eyes on interest rate movements
During the most recent FOMC meeting this month, the Fed maintained its dovish stance on monetary policy. Nevertheless, market expectations point towards a hike in the Fed Funds target rate in 2Q15. Consequently, this would likely influence the Singapore Government 10-year bond yield and SIBOR to increase, and could result in volatility in the share prices of S-REITs. On a positive note, most REITs have buffered up their balance sheets to keep gearing ratios at relatively comfortable levels post the Great Financial Crisis (GFC), while hedging strategies have also largely been put in place. Moreover, evidence suggests that over a longer time horizon, there is no clear-cut inverse relationship between the Singapore Government 10-year bond yield and the share price performance of S-REITs. The correlation of the two came in at only -0.11 from Sep 2002 to date.

Maintain NEUTRAL on S-REITs sector
In terms of valuations, the FSTREI is trading above historical levels on a P/B basis (forward P/B of 1.02x is ~0.5 standard deviation above its 7-year mean of 0.93x). The yield spread of the FSTREI over the Singapore Government 10-year bond yield currently stands at 4.0%, which is below the 7-year average of 4.7% (4.3% if we exclude the GFC period). We have OVERWEIGHT ratings on the office and retail REITs sub-sectors, and NEUTRAL ratings on the industrial, hospitality and healthcare REITs sub-sectors. Overall, we maintain NEUTRAL on the S-REITs sector. Our top picks are CapitaMall Trust (CMT) [BUY; FV: S$2.20], Frasers Centrepoint Trust (FCT) [BUY; FV: S$2.08] and Starhill Global REIT [BUY; FV: S$0.90].

Frasers Centrepoint Trust

OCBC on 27 Oct 2014

Frasers Centrepoint Trust’s (FCT) FY14 DPU of 11.187 S cents (+2.4%) matched our 11.2 S cents forecast, and was its eighth consecutive year of growth since its IPO. Overall portfolio occupancy stood at a healthy 98.9% (+0.4 ppt from 3QFY14). FCT also recorded positive average rental reversions of 10.9% and 6.5% in 4QFY14 and FY14, respectively. We remain confident on the prospects of Causeway Point, Northpoint and Changi City Point, but expect the leasing environment to remain challenging at Bedok Point. We fine-tune our assumptions marginally following a change in analyst coverage. Our FY15F DPU forecast of 11.8 S cents translates into a growth of 5.5% and implies another record year on the cards. We continue to like FCT for its resilient portfolio, defensive earnings and FY15F distribution yield of 6.1%. Maintain BUY and S$2.08 fair value estimate.

Record FY14 DPU, in-line with expectations

Frasers Centrepoint Trust (FCT) reported 4QFY14 revenue of S$46.7m, up 16.1% YoY, attributed largely to the acquisition of Changi City Point on 16 Jun 2014. DPU dipped 6.5% to 2.785 S cents, as 4QFY13 DPU included 0.35 S cents of retained cash from previous quarters. Excluding this one-off item, DPU for 4QFY14 would have increased by 5.9% YoY. For FY14, FCT’s revenue rose 6.8% to S$168.8m, or 97.3% of our estimate. Full year DPU of 11.187 S cents (+2.4%) matched our 11.2 S cents forecast, and was FCT’s eighth consecutive year of growth since its IPO.

Operating statistics still healthy
Overall portfolio occupancy stood at a healthy 98.9% (+0.4 ppt QoQ). FCT also recorded positive average rental reversions of 10.9% and 6.5% in 4QFY14 and FY14, respectively, although the latter was softer than the 7.7% reversion achieved in FY13. Despite a 3% YoY and 2% QoQ decline in shopper traffic in 4QFY14, FCT’s portfolio tenants’ sales inched up 0.6% for 11MFY14. This reflects the resiliency of its suburban malls, which depend more on non-discretionary spending. We remain confident on the prospects of Causeway Point, Northpoint and Changi City Point, but expect the leasing environment to remain challenging at Bedok Point. Average rental rates at Bedok Point may continue to ease, but we expect NPI to improve in FY15 due to management’s efforts to turn the mall around (occupancy at Bedok Point rose from 77.0% in 2QFY14 to 98.2% in 4QFY14). FCT will continue to work closely with its anchor tenants to carry out more advertising and promotion activities.

Reiterate BUY
From a financial position perspective, FCT had a comfortable gearing ratio of 29.3%, with an average all-in cost of borrowing of just 2.51%. We fine-tune our assumptions marginally following a change in analyst coverage. Our FY15F DPU forecast of 11.8 S cents translates into a growth of 5.5% and implies another record year on the cards. We continue to like FCT for its resilient portfolio, defensive earnings and FY15F distribution yield of 6.1%. Maintain BUY and S$2.08 fair value estimate.

Frasers Centrepoint Trust

OCBC on 23 Jul 2014

Frasers Centrepoint Trust (FCT) reported 3QFY14 DPU of 3.022 S cents, up 6.0% YoY. This is largely in line with our expectation. Noteworthy in 3Q was the significant improvement in FCT’s portfolio occupancy to 98.5% from 96.8% in preceding quarter. We understand that Bedok Point’s occupancy rose to a strong 99.3% from 77.0% in Mar, after several new tenants commenced operations in the quarter. On the portfolio basis, positive rental reversion of 7.8% was also achieved, with only Bedok Point registering a mild 2.9% negative reversion. We maintain our view that Causeway Point and Northpoint will continue to underpin organic growth in the year ahead, while Changi City Point will provide further boost to FCT’s income. Maintain BUY on FCT with an unchanged fair value of S$2.08.

Strong 3QFY14 results as expected
Frasers Centrepoint Trust (FCT) reported a promising set of 3QFY14 results last evening, with gross revenue growing 3.1% YoY to S$41.2m and NPI improving 2.4% to S$29.1m. The better performance was mainly due to higher revenue from Causeway Point and maiden contribution from newly-acquired Changi City Point. Distribution to unitholders of S$25.5m (+8.6%) was further boosted by the release of S$2.1m cash retained in 1HFY14. As such, DPU for the quarter came in at 3.022 S cents, up 6.0% YoY. This brings the 9MFY14 DPU to 8.402 S cents (+5.7%), meeting 75.9%/76.4% of our/consensus full-year DPU projections.

Improvement in operating metrics
Noteworthy in 3Q was the significant improvement in FCT’s portfolio occupancy to 98.5% from 96.8% in preceding quarter. We understand that Bedok Point’s occupancy rose to a strong 99.3% from 77.0% in Mar, after several new tenants including anchor tenant Harvey Norman commenced operations in the quarter. On the portfolio basis, positive rental reversion of 7.8% was also achieved (2Q: +9.3%), with only Bedok Point registering a mild 2.9% negative reversion. Overall shopper traffic in 3Q14 picked up 2.7% QoQ, led by Causeway Point which saw a 9.0% robust growth.

Maintain BUY
While management cautions that more retail space alternatives and labour shortages are likely to pose challenges to retail landlords going forward, it expects its portfolio occupancy and rental rates to remain sustainable. We maintain our view that Causeway Point and Northpoint will continue to underpin organic growth in the year ahead, while Changi City Point will provide further boost to FCT’s income. We make minor adjustments to our forecasts as the interim results were mostly consistent with our expectations. Our fair value is unchanged at S$2.08. Maintain BUY on FCT as upside potential remains attractive.

Frasers Centrepoint Trust

DBS Group Research, Equity, June 24

EARLIER this month, Frasers Centrepoint Trust (FCT) announced it had issued 88 million shares at S$1.835 a share (S$161.5 million in total) in a private placement to partially fund its S$305 million acquisition of Changi City Point (CCP), which was completed on June 16.

This was well subscribed, accounting for about 52 per cent of the acquisition price, on the higher end of our initial assumptions of 40-45 per cent, based on a gearing cap of 35 per cent (vs 31 per cent post-acquisition and placement).

As CCP is still in its first rent cycle and about 60 per cent of leases are up for renewal in FY14/15, the manager is uniquely poised to deliver earnings growth by refreshing the mall's tenant mix to better cater to its growing catchment population.

While there are no plans to increase the relative proportion of F&B tenants from the existing level of 44 per cent, we understand that the manager is looking to bring in F&B tenants that better cater to the preferences of students at the upcoming Singapore University of Technology and Design and workers at Changi Business Park.

Furthermore, for its retail tenants, the manager is looking to offer a better complementary shopping experience for the weekend expo crowds.

Through these initiatives, we forecast FCT to deliver two-year earnings CAGR (compound annual growth rate) of 6 per cent for FY15-16.

At current levels, FCT offers an attractive FY14-16F yield of 6.0-6.8 per cent - higher than Singapore-focused retail S-Reits, which are trading at yields of 5.5-6.6 per cent.

We have marginally increased our FY14 forecast earnings estimates to account for revised funding assumptions, no change to our TP of $2.13. FCT offers investors a 24-25 per cent total return for FY14/15. We maintain our BUY call.

BUY

Frasers Centrepoint Trust

OCBC on 18 June 2014

Frasers Centrepoint Trust (FCT) announced that it has completed the acquisition of Changi City Point (CCP) on Mon. The acquisition was funded partially by net proceeds of S$158.7m raised from the private placement of 88m units, while the balance of the purchase consideration by borrowings and internal resources. Based on our projections, the CCP deal is expected to add an annualised 0.12 S cents to FCT’s DPU. FCT’s gearing ratio, on the other hand, is likely to increase from 27.7% as at 31 Mar to 30.3%. In connection with the placement, FCT has also declared an advance distribution of 2.288 S cents per unit for the period of 1 Apr to 9 Jun 2014, payable on/around 17 Jul. This translates to a respectable yield of 6.4%. We now incorporate the private placement and acquisition into our forecasts. Consequently, our fair value is raised from S$2.02 to S$2.08. Given that upside potential remains attractive, we maintain our BUY rating on FCT.

New addition to portfolio
Frasers Centrepoint Trust (FCT) announced that it has completed the acquisition of Changi City Point (CCP) from its sponsor’s joint venture Ascendas Frasers Pte Ltd on Mon. Recall that FCT first proposed to acquire the retail mall for a purchase consideration of S$305.0m (or S$1,472 psf NLA) on 8 Apr. According to the circular for unitholders, CCP is expected to generate an NPI yield of 5.43% and to contribute positively to DPU, assuming that the transaction is funded via a combination of debt and equity.

Strong interest for private placement
FCT has since launched a private placement of 88m new units at an issue price of between S$1.79 and S$1.835 per unit, upon getting unitholders’ approval for the related-party transaction. We note that the issue price was later fixed at the top range of S$1.835, backed by strong demand from new and existing Asian and European institutional investors. This represents a slight 3.6% discount to the VWAP for the full market day prior to the placement announcement. The total net proceeds of S$158.7m raised from the placement exercise was used to part finance the acquisition, while the remaining balance of the purchase price was funded by borrowings and internal resources. Based on our projections, the CCP deal is expected to add an annualised 0.12 S cents to FCT’s DPU. FCT’s gearing ratio, on the other hand, is likely to increase from 27.7% as at 31 Mar to 30.3%.

Maintain BUY
In connection with the placement, FCT has also declared an advance distribution of 2.288 S cents per unit for the period of 1 Apr to 9 Jun 2014, payable on/around 17 Jul. This translates to a respectable yield of 6.4%. We now incorporate the private placement and acquisition into our forecasts. Consequently, our fair value is raised from S$2.02 to S$2.08. Given that upside potential remains attractive, we maintain our BUY rating on FCT.

Frasers Centrepoint Trust

OCBC on 23 Apr 2014

Frasers Centrepoint Trust (FCT) reported 2QFY14 DPU of 2.88 S cents, up 6.7% YoY. This is largely within our view, given that first-half DPU of 5.38 S cents met 47.8% of our FY14F DPU. We note that portfolio occupancy has maintained steady at 96.8% (1Q: 96.7%), while rental reversions stayed robust at 9.3% (1Q: +2.5%) for the leases renewed during the quarter. Looking ahead, FCT reiterated that Causeway Point and Northpoint are expected to underpin growth within its existing portfolio, as both malls contribute to the bulk of the lease renewals in FY14-15. As announced on 8 Apr, FCT has proposed to acquire Changi City Point for S$305.0m. We view this addition as timely, as it will provide another boost to DPU in an otherwise moderating growth portfolio. Maintain BUY with unchanged S$2.02 fair value on FCT.

Consistent set of 2QFY14 results
Frasers Centrepoint Trust (FCT) reported its 2QFY14 scorecard last evening. NPI and distributable income grew by 2.0% and 1.4% YoY to S$29.3m and S$23.8m respectively. The better performance was driven mainly by higher revenue from Causeway Point (CWP), though partially offset by higher property taxes, maintenance costs and property manager’s fees. No cash was retained during the quarter, as opposed to S$1.2m cash reserved in prior year. As such, DPU grew at a faster pace of 6.7% YoY to 2.88 S cents. This is largely within our view, given that first-half DPU of 5.38 S cents met 47.8% of our FY14F DPU (consensus: 48.9%).

Disruptions from Bedok Point; portfolio steady
On first look, headline figures such as a 7.6% YoY decline in shopper traffic to 20.4m and 19.5ppt YoY drop in Bedok Point’s occupancy to 77.0% have raised concerns. However, we understand that the fall in shopper traffic was mainly impacted by on-going refurbishment works at Bedok Point and CWP. Management projects the occupancy at Bedok Point to recover to above 95% in 2HCY14 after the lease commencement of several new tenants, which we believe will bring about improvements in occupancy and footfall. Overall, we note that portfolio occupancy has maintained steady at 96.8% (1Q: 96.7%), while rental reversions stayed robust at 9.3% (1Q: +2.5%) for the leases renewed during the quarter.

Maintain BUY with unchanged S$2.02 fair value
Looking ahead, FCT reiterated that CWP and Northpoint are expected to underpin growth within its existing portfolio, as both malls contribute to the bulk of the lease renewals in FY14-15. As announced on 8 Apr, FCT has proposed to acquire Changi City Point for S$305.0m. No additional colour was given on the transaction, except that FCT intends to finance it using a combination of debt and equity (via private placement), and that the deal is expected to be DPU-accretive. We view this addition as timely, as it will provide another boost to DPU in an otherwise moderating growth portfolio. Maintain BUY with unchanged S$2.02 fair value on FCT.

Frasers Centrepoint Trust

OCBC on 22 Jan 2014

Frasers Centrepoint Trust (FCT) reported 1QFY14 DPU of 2.50 S cents, up 4.2% YoY, in line with our expectations. Causeway Point (CWP) continued to shine in 1Q, turning in a robust 8.6% growth in NPI, while Northpoint registered a 1.4% growth. However, its portfolio performance was somewhat dampened by Bedok Point, which saw negative reversions and occupancy drop during the quarter. Going forward, FCT disclosed that it will continue to fine-tune the tenant mix at Bedok Point, and is willing to lower rents to keep incumbents and entice new tenants for sustainable performance. Hence, pressure on base rents and fluctuations in occupancies are expected going forward. Nevertheless, management maintains that CWP and Northpoint are likely to continue to deliver in FY14. With the completion of the A&A works at CWP, FCT is also looking to acquisitions to boost growth. We maintain BUY with unchanged fair value of S$2.02 on FCT.

1QFY14 performance within view
Frasers Centrepoint Trust (FCT) released its 1QFY14 results last evening, with no surprises on its performance. NPI grew by 4.4% YoY to S$28.3m, while distributable income rose by 4.0% to S$22.7m due to improvement in revenue from Causeway Point (CWP) upon completion of its addition and alteration (A&A) works. About S$2.1m or 0.25 S cents in cash was retained for the quarter, similar to that in 1QFY13. As such, DPU increased by 4.2% to 2.50 S cents. This formed 24.4%/25.0% of our/consensus full-year DPU projections, which we deem to be consistent with expectations.

Portfolio stable despite movements within assets
CWP continued to shine in 1Q, turning in a robust 8.6% growth in NPI to S$14.1m. Northpoint also registered a 1.4% growth to S$8.8m. In addition, both malls saw robust rental reversions of 7.3%-15.4%, while occupancy rates were kept at high levels of 98.5%-99.1%. As management has previously guided, occupancy rate at YewTee Point improved by 4.4ppt QoQ to 97.1% as new tenants started their leases during the quarter. However, its portfolio performance was somewhat dampened by Bedok Point, which saw negative reversions of 16.0% and occupancy dropped from 96.7% in the preceding quarter to 80.2% due to on-going fitting of incoming tenants and impending A&A works at the basement.

Maintain BUY 
Going forward, FCT disclosed that it will continue to fine-tune the tenant mix at Bedok Point, and is willing to lower rents to keep incumbents and entice new tenants for sustainable performance. Hence, pressure on base rents and fluctuations in occupancies (possibly within 80%-95% range) are expected going forward. However, management maintains that CWP and Northpoint are likely to continue to deliver in FY14, as higher secured rentals are expected upon lease renewal. With the completion of the A&A works at CWP, FCT is also looking to acquisitions to boost growth. We understand that the strata title division of One@Changi City is on target for completion, and an acquisition of Changi City Point may happen in 2014. MaintainBUY with unchanged fair value of S$2.02.

Frasers Centrepoint Trust

OCBC on 23 Oct 2013

Frasers Centrepoint Trust’s (FCT) FY13 DPU came in at 10.93 S cents (+9.2%), spot on with our DPU projection. We note that overall performance has remained robust, with portfolio occupancy maintained at a high 98.4%, while positive rental reversion of 10.8% was achieved. We also understand ~2% of retail space at YewTee Point is expected to start operations in Oct, which is likely to improve the mall’s occupancy. For Bedok Point, management also updated that it has successfully secured an electronics retailer as its anchor tenant for basement one. This may translate to a more stable performance at the mall. Looking forward, FCT reiterated CWP and Northpoint will continue to perform, as leases at the malls amounting to 75.5% of FCT’s gross rent are due for renewal and positive reversions are still expected. FCT also revealed that the strata title division of One@Changi City is progressing well, and that the asset injection may take place in 2014. We are rolling our valuation to FY14, while keeping our forecasts largely intact. Our fair value is in turn raised to S$2.02 from S$1.96 previously. As upside now looks compelling, we upgrade FCT from Hold to BUY.

Consistent set of 4QFY13 results
Frasers Centrepoint Trust’s (FCT) 4QFY13 NPI fell 5.0% YoY to S$27.3m on higher property expenses. However, distributable income was up 2.7% to S$21.7m as FCT benefited from lower borrowing costs and higher distribution from Hektar REIT. In addition, S$2.9m of cash (0.35 S cents/unit) retained in 1HFY13 was distributed during the quarter. Consequently, DPU jumped 10.0% to 2.98 S cents. For FY13, NPI grew 6.9% to S$111.6m, whereas distributable income rose 9.5% to S$90.1m. Full-year DPU came in at 10.93 S cents (+9.2%), spot on with our DPU projection (consensus: 11.0 S cents). This, we note, marked FCT’s seventh year of consecutive DPU growth since its listing. 

Leasing demand remained robust
Expectedly, Causeway Point (CWP) remained the main revenue generator, raking up 7.4% growth amid improved occupancy and rental rates. During the quarter, however, the mall was subject to higher property taxes (significant portion backdated from 2010 to 2012) and maintenance costs (higher amount budgeted ahead for the year). This brought CWP’s NPI down by 6.7%. Nevertheless, we note that overall performance remained robust, with portfolio occupancy maintained at a high 98.4%, while positive rental reversion of 10.8% was achieved. We also understand ~2% of retail space at YewTee Point is expected to start operations in Oct, which is likely to improve the mall’s occupancy. For Bedok Point, management also updated that it has successfully secured an electronics retailer as its anchor tenant for basement one. This may translate to a more stable performance at the mall.

Upgrade to BUY
Looking forward, FCT reiterated CWP and Northpoint will continue to perform, as leases at the malls amounting to 75.5% of FCT’s gross rent are due for renewal and positive reversions are still expected. FCT also revealed that the strata title division of One@Changi City is progressing well, and that the asset injection may take place in 2014. We are rolling our valuation to FY14, while keeping our forecasts largely intact. Our fair value is in turn raised to S$2.02 from S$1.96 previously. As upside now looks compelling, we upgrade FCT from Hold to BUY.

Frasers Centrepoint Trust

OCBC on 24 Jul 2013

Frasers Centrepoint Trust (FCT) reported 3QFY13 DPU of 2.85 S cents, representing a YoY growth of 9.6%. This brings the 9MFY13 DPU to 7.95 S cents (+8.9%), forming 73.2% of our FY13F DPU. This is largely in line with our expectations, as we expect the remaining S$2.9m retained in 1H to be distributed in 4Q. Key drivers for 3Q performance remained Causeway Point (CWP) and Northpoint. However, pockets of weakness persisted at YewTee Point and Bedok Point. Looking ahead, FCT expects CWP and Northpoint to remain as the main engines for growth, as leases amounting to a substantial 75.6% of FCT’s gross rent are up for renewal in FY14, and positive rental reversions are still expected. On its acquisition front, FCT believes that the injection of Changi City Point in FY13 now appear remote as the strata title division of One@Changi City is still ongoing. We are keeping our forecasts largely unchanged, but as we switch our valuation to dividend discount model and factor in higher risk free rates, our fair value drops from S$2.13 to S$1.96. Maintain HOLD on FCT.

3QFY13 results within view
Frasers Centrepoint Trust (FCT) reported its 3QFY13 results last evening. NPI climbed 15.4% YoY to S$28.5m, while distributable income rose 14.2% to S$23.1m. During the quarter, FCT also released S$0.4m or 0.05 S cents per unit from cash retained in 1HFY13. As such, 3Q DPU stood at 2.85 S cents, representing a YoY growth of 9.6%. For 9MFY13, NPI was up 11.4% to S$84.3m, whereas DPU was up 8.9% to 7.95 S cents, forming 73.2% of our FY13F DPU of 10.86 S cents (consensus: 10.9 S cents). This is largely in line with our expectations, as we expect the remaining S$2.9m retained in 1H to be distributed in 4Q.

No surprises in underlying performance
Key driver for 3Q performance remained Causeway Point (CWP), which registered a 30.3% YoY growth in the mall’s NPI amid significantly improved occupancy and rental rates post asset enhancement. In addition, Northpoint saw its NPI grew 7.9% YoY on positive rental growth and car park income. However, pockets of weakness persisted at 1) YewTee Point as FCT continued to seek good tenants to fill up the space vacated by two previous tenants, and 2) Bedok Point as the mall undergoes a repositioning exercise. Nevertheless, we understand that FCT has recently found a quality tenant at YewTee Point, and this should lead to better occupancy and performance in 4Q. At Bedok Point, we note that management intends to secure an anchor tenant for its basement one. This may translate to a more stable performance at the mall, although asking rents may be under pressure.

Maintain HOLD on valuation grounds
Looking ahead, FCT expects CWP and Northpoint to remain as the main engines for growth, as leases amounting to a substantial 75.6% of FCT’s gross rent are up for renewal in FY14, and positive rental reversions are still expected. On its acquisition front, FCT believes that the injection of Changi City Point in FY13 now appear remote as the strata title division of One@Changi City is still ongoing. We are keeping our forecasts largely unchanged, but as we switch our valuation to dividend discount model and factor in higher risk free rates, our fair value drops from S$2.13 to S$1.96. Maintain HOLD on FCT.

Frasers Centrepoint Trust

OCBC on 18 Apr 2013

Frasers Centrepoint Trust’s (FCT) 1HFY13 DPU climbed 8.5% to reach 5.1 S cents, forming ~47% of ours and consensus full-year DPU forecasts. This is broadly in line with expectations, given that the income retained in 1H is likely to be distributed in 2H. On the whole, we note that positive rental reversion of 6.6% was achieved in 1H (1Q: 5.2%, 2Q: 10.1%). Portfolio occupancy also improved to 98.2% as at 31 Mar from 87.2% in prior quarter, boosted by start of tenant operations following the fitting out at CWP and Bedok Point. This more than offset the temporary dip in occupancy rates at YewTee Point and Anchorpoint. Looking ahead, management expects CWP and Northpoint to continue to uphold the growth momentum of FCT, while the rest of the malls to remain stable. FCT also updated that the sub-division of the strata titles of the components at One@Changi City is still ongoing, and completion of the process remains uncertain. We like FCT for its strong execution, strong financial position (30.5% gearing) and suburban mall exposure, but at current price, we deem the valuation (1.45x P/B) as fair, not compelling. As such, we maintain HOLD and S$2.13 fair value on FCT.

2QFY13 results broadly in line
Frasers Centrepoint Trust (FCT) announced a firm set of 2QFY13 results yesterday. NPI and distributable income grew by 9.7% and 10.4% YoY to S$28.7m and S$23.5m respectively. DPU came in at 2.7 S cents, up by a slightly slower 8.0% due to retention of S$1.2m (0.15 S cents) in distributable income. For 1HFY13, NPI rose 9.4% YoY to S$55.9m, while distributable income increased 10.6% to S$45.3m. 1H DPU, on the other hand, climbed 8.5% to reach 5.1 S cents, forming ~47% of ours and consensus full-year DPU forecasts. This is broadly in line with expectations, given that the income retained in 1H (S$3.3m) is likely to be distributed in 2H. 

Bigger malls continued to perform
FCT’s crown jewel, Causeway Point (CWP), continued to exhibit strength post asset enhancement (AEI), with 2Q NPI growing a significant 17.4% amid higher lease commencements, turnover rents and better contracted rates. Northpoint also registered 6.0% growth in NPI on the back of positive rental reversions. Only YewTee Point and Bedok Point suffered a slight NPI decline of 3.5% and 1.1% respectively. On the whole, we note that positive rental reversion of 6.6% was achieved in 1H (1Q: 5.2%, 2Q: 10.1%). In addition, portfolio occupancy improved to 98.2% as at 31 Mar from 87.2% in prior quarter, boosted by start of tenant operations following the fitting out at CWP and Bedok Point. This more than offset the temporary dip in occupancy rates at YewTee Point and Anchorpoint. 

Maintain HOLD
Looking ahead, management expects CWP and Northpoint to continue to uphold the growth momentum of FCT, while the rest of the malls to remain stable. FCT also updated that the sub-division of the strata titles of the components at One@Changi City is still ongoing, and completion of the process remains uncertain. We like FCT for its strong execution, strong financial position (30.5% gearing) and suburban mall exposure, but at current price, we deem the valuation (1.45x P/B) as fair, not compelling. As such, we maintain HOLD and S$2.13 fair value on FCT.

Frasers Centrepoint Trust

OCBC on 3 Apr 2013

Frasers Centrepoint Trust (FCT) has enjoyed a good run-up in its unit price, clocking a 7.0% return YTD and 40.8% return YoY. This compares significantly to the 5.7% YTD and 31.4% YoY increase seen by the FTSE ST REIT Index. Now trading near its historical high and our fair value, FCT is the most expensive (P/B of 1.40x) when compared to its local retail peers (1.18x) and the S-REITs sector average (1.17x). As such, we believe that most of the good news has been priced in. While the asset injection of Changi City Point into FCT’s portfolio may possibly be a catalyst to its unit price and DPU growth, the timeline is uncertain as the regulatory procedures for the strata division into its retail, business park and hospitality components is a lengthy process. In view of the limited upside potential in the near term, we now downgrade FCT from Buy to HOLD on valuation grounds. We recommend switching FCT to CapitaMall Trust [BUY, S$2.32 FV] as a cheaper alternative to blue-chip local retail play with exposure to equally resilient suburban portfolio assets.

Strong unit price performance
Frasers Centrepoint Trust (FCT) has enjoyed a good run-up in its unit price, clocking a 7.0% return YTD and 40.8% return YoY. This compares significantly to the 5.7% YTD and 31.4% YoY increase seen by the FTSE ST REIT Index (STI: 4.8% YTD, 10.2% YoY). We believe the outperformance is reflective of its resilient suburban malls and laudable financial results in 1QFY13. As a note, its DPU grew by 9.1% YoY to reach 2.40 S cents despite retaining S$2.1m in distributable income during the quarter.

Likely limited upside in near term
At current price level, we believe that most of the good news has been priced in. Now trading near its historical high and our fair value, FCT is the most expensive (P/B of 1.40x) when compared to its local retail peers (1.18x) and the S-REITs sector average (1.17x). While we note that FCT’s portfolio occupancy (96.4% as at 31 Dec 2012) is likely to improve further in 2QFY13 following the completion of fitting out and start of operations by tenants at Causeway Point and Bedok Point, we judge that the incremental income is likely to be relatively modest from the prior quarter.

Downgrade to HOLD on valuation grounds
The asset injection of Changi City Point into FCT’s portfolio may possibly be a catalyst to its unit price and DPU growth, but timeline is uncertain as the regulatory procedures for the strata division into its retail, business park and hospitality components is a lengthy process. At an estimated book value of ~S$198m for the retail mall, we also do not rule out the possibility of FCT raising equity to fund the acquisition. Recall that FCT has previously financed its past acquisitions via private placements in 2010-11. Our fair value remains unchanged at S$2.13. However, in view of the limited upside potential in the near term, we now downgrade FCT from Buy to HOLD on valuation grounds. We recommend switching FCT to CapitaMall Trust [BUY, S$2.32 FV] as a cheaper alternative to blue-chip local retail play with exposure to equally resilient suburban portfolio assets.

Frasers Centrepoint Trust

DMG & PARTNERS RESEARCH on 24 Oct 2012

Q4 FY2012 DPU better than expected. Frasers Centrepoint Trust (FCT) reported a Q4 FY2012 DPU of 2.71 cents (+15.3 per cent y-o-y). Together with the dividend distributed in the first Q3 of FY2012, total DPU came in at 10.01 cents (+20.3 per cent y-o-y), outperforming our FY2012 DPU forecasts by 5.4 per cent. Revenue for Q4 FY2012 grew to $39.0 million (+14.3 per cent y-o-y) while net property income rose to $28.7 million (+13.7 per cent y-o-y).

These strong growths are mainly attributed to strong contributions from Causeway Point (CWP), full-year contributions from Bedok Point and positive growth in all other malls. Going forward, we expect FCT to continue to register stronger numbers on the back of increased contributions from CWP as average occupancy and rental rates continue to pick up from its lows during the initial stage of AEI and positive rental reversions in suburban malls to continue.

Given FCT's defensive portfolio, potential to acquire Changi CityPoint in FY2013 coupled with the continual interest in high dividend plays amid a strong Singapore dollar and a prolonged low interest rate environment, we maintain "buy" call on FCT with an upward revision in our dividend discount model-based TP of $2.10.

Positive growth from CWP and Bedok Point. Going forward, we expect market confidence for rental rates in suburban malls to remain intact as we step into the fourth quarter, which is traditionally a peak season for retail due to year-end festivities. Additionally, we expect FCT's DPU to continue to grow on the back of additional contributions from both CWP and Bedok Point. Currently, works at CWP are on track for full completion by December 2012, while Bedok Point continues to grow strongly, contributing $12.5 million to the group's FY2012 revenue.

Current market conditions beneficial to FCT share price. In view of a volatile global market, the Singapore government 10-year bond has fallen to 1.33 per cent from 1.75 per cent since March as investors continue to view Singapore bonds as a safe investment haven. Going forward, as the global market continues to be plagued by uncertainty, we believe FCT, which is viewed as highly defensive, will continue to be appealing on the back of high liquidity, prolonged low interest rate environment and a strong Singapore currency.

Maintain 'buy' with revised TP to $2.10. As the outlook for suburban malls remains strong, together with respectable DPU growth for the rest of the year, we continue to maintain our "buy" rating with an upward revision in TP to $2.10.
BUY

Frasers Centrepoint Trust

OCBC on 24 Oct 2012

Frasers Centrepoint Trust (FCT) reported a strong set of 4QFY12 results yesterday. Expectedly, the performance was driven by Causeway Point (CWP) following the substantial completion of the mall’s refurbishment and full-year contribution from Bedok Point. Positive rental reversion of 8.9% was also achieved during the quarter. As at 30 Sep, FCT’s portfolio occupancy was largely unchanged at 93.6% (93.7% in 3Q), but looks set to improve when the asset enhancement works at CWP complete in Dec. We continue to like FCT for its pure suburban mall exposure and growth potential. Based on our understanding, the business park at One@Changi City may possibly obtain TOP by end-2012, while its retail mall occupancy may have already stabilized above 90%. Hence, we believe the injection of Changi City Point may likely happen in FY13, which should provide FCT with next level of growth. Maintain BUY with higher fair value of $2.13 (S$1.97 previously) as we update our model to incorporate firmer cap rates.

FY12 results in line with our projections
Frasers Centrepoint Trust (FCT) reported a strong set of 4QFY12 results yesterday. NPI grew by 13.7% YoY to S$28.7m, while distributable amount rose 21.8% to S$22.3m. DPU reached its record high at 2.71 S cents (+15.3%), partially boosted by a distribution of S$1.2m that was retained in 1HFY12. This was spot on with our 4Q DPU forecast but was ahead of street’s expectations. As a result, FY12 DPU amounted to 10.01 S cents, up 20.3%. This implies a decent yield of 5.3%.

Operating performance looks set to improve
Expectedly, the strong performance was driven by Causeway Point (CWP) following the substantial completion of the mall’s refurbishment and full-year contribution from Bedok Point. Positive rental reversion of 8.9% was also achieved during the quarter. As at 30 Sep, FCT’s portfolio occupancy was largely unchanged at 93.6% (93.7% in 3Q). Management reiterated that the asset enhancement initiative (AEI) at CWP is on track for full completion and is expected to reach full occupancy by Dec as the refurbished space on levels 5 and 7 are progressively leased out to tenants. In addition, average current passing rent is north of S$12.20, significantly higher than the rent of S$10.20 prior to AEI.

Maintain BUY with higher fair value of S$2.13
We also note that FCT’s financial position has strengthened. Gearing ratio improved to 30.1% from 31.3% a year ago (31.7% in 3Q), due mainly to an enlarged asset base and asset revaluation gain of S$100.7m (NAV up 8.5% YoY). We continue to like FCT for its pure suburban mall exposure and growth potential. Based on our understanding, the business park at One@Changi City may possibly obtain TOP by end-2012, while its retail mall occupancy may have already stabilized above 90%. Hence, we believe the injection of Changi City Point may likely happen in FY13, which should provide FCT with next level of growth. Maintain BUY with higher fair value of $2.13 (S$1.97 previously) as we update our model to incorporate firmer cap rates.

Frasers Centrepoint Trust

OCBC on 2 Oct 2012

Frasers Centrepoint Trust (FCT) announced last Friday that it had increased its interest in Hektar REIT from 99.4m units to 124.9m units. The rise in unitholding was pursuant to the provisional allotment of rights units to FCT under the one-for-four rights issue and allocation of excess rights units by Hektar REIT. We are positive of this development as it presents FCT with greater opportunity to participate in the burgeoning retail market in Malaysia. Both malls are strategically located in areas with strong traffic catchment and offer good growth potential. Hence, while the acquisitions are not expected to have any immediate material effect on FCT’s distributable income, we expect FCT to benefit from Hektar REIT’s repositioning and upgrading plans and in turn an improvement in DPU going forward. We now factor in FCT’s increased interest in Hektar REIT and roll over our valuations to FY13, hence raising our fair value from S$1.89 to S$1.97. Maintain BUY. 

Acquisition of Hektar REIT units
Frasers Centrepoint Trust (FCT) announced last Friday that it had increased its interest in Hektar REIT from 99.4m units (31.06%) to 124.9m units (31.17%). The rise in unitholding was pursuant to the provisional allotment of rights units to FCT under the one-for-four rights issue and allocation of excess rights units by Hektar REIT. As a reference, Hektar REIT had proposed the acquisitions of two retail mall properties, Landmark Central Property (LCP) and Central Square Property (CSP) for a total of RM181.0m, and the equity fund raising was done to partially fund the acquisitions. 

Likely improvement in DPU by Hektar REIT
We are positive of this development as it presents FCT with greater opportunity to participate in the burgeoning retail market in Malaysia. Both malls are strategically located in areas with strong traffic catchment and offer good growth potential. According to Hektar REIT, the occupancy of LCP is likely to increase from 76.7% to 99.0% upon the commencement of tenancy by The Store on 15 Oct, while an intended refurbishment of CSP post acquisition is expected to enhance its rental rates. Hence, while the acquisitions are not expected to have any immediate material effect on FCT’s distributable income, we expect FCT to benefit from Hektar REIT’s repositioning and upgrading plans, and in turn an improvement in DPU going forward. As a note, the NPI of both properties comprised ~18.9% of Hektar REIT’s FY11 NPI of RM58.3m, based on latest available figures. This is relatively sizeable in our view.

Maintain BUY
We also like FCT for its pure suburban exposure, strong execution and sturdy financial position. We believe FCT will continue to gain from strong rental uplift at Causeway Point and incremental income from Bedok Point. Operationally, FCT is expected to show improvement in portfolio occupancy and track positive rental reversions. We now factor in FCT’s increased interest in Hektar REIT and roll over our valuations to FY13, hence raising our fair value from S$1.89 to S$1.97. Maintain BUY.

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.

Singapore Retail Sector

Kim Eng on 9 Jul 2012

A more resilient sector. Singapore’s retail sector has proven to be more resilient and less volatile than the office sector. For the past 15 years, the vacancy rates of the retail sector islandwide have ranged from 6% to 10%, with incremental demand matching incremental supply, on average. (In comparison, the office sector has vacancy rates within the 6–19% range.)

Suburban retail supply to dominate. Looking ahead, we project that there will be an additional supply of 0.5m sq ft in 2012, before the next onslaught of almost 2m sq ft in 2013. Unlike the situation in 2009, where the focus was on the Orchard Road stock, most of the supply this time round will come from the suburban micro-market: approximately 1.7m sq ft from suburban areas and 0.5m sq ft from Orchard Road in 2012– 013.

Orchard Road retail micromarket. We are expecting tourist arrivals to grow at a CAGR of 5.2% over 2011–2015, reaching 16.2m arrivals by 2015. We believe that the increase in the tourist arrivals will provide some form of price support for Orchard rentals, especially since there is no more known supply after 2013. We believe that Orchard retail demand will grow at a CAGR of 2.8%, outstripping overall supply increases (CAGR: 2.4%) for 2011–2015. This will cause vacancy rates to dip from 5.4% in 2011 to 4% in 2015. We also expect Orchard rentals to register per annum growth of 0–3.5% in 2012–15 (CAGR of 2.2% over 2011–2015), as concerns on the supply overhang are removed.

Suburban retail micromarket. According to our forecasts, the suburban private sector retail supply will grow at a CAGR of 10.6% over 2011– 2015, thus slightly exceeding the demand CAGR of 10.1%. This will in turn cause vacancy rates to rise from 3.9% in 2011 to 5.7–5.9% in 2014– 2015. However, looking at the approximately 40.7k new private homes (incl. ECs) that were sold in the Outside Central Region in 2009– TD 2012 and the bumper HDB launch of 50,000 BTO flats in 2011–2012, we think that the suburban stock will still be relatively well-absorbed by the incoming demand (except for some geographic precincts, such as
Jurong, which may be tight in the initial years after completion). Our retail floor space per capita computation (Figure 12) substantiates our position. We estimate that suburban rentals will continue to grow at a CAGR of 1.95% in 2011–2015.

Reiterate our positive stance on retail. We have factored in our new rental assumptions into REITs under our coverage. Consequently, we upgrade our rating on SGREIT to BUY at TP of SGD0.74 (prev. SGD0.65). Our top picks for this sector continue to be CMT (BUY, TP SGD2.20) (unchanged) and FCT (BUY, TP SGD1.85) (prev. SGD1.79) for their pure-Singapore retail mall exposure.