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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