FrasersCT – UOBKH

Defensive Anchor From Suburban Malls

Frasers Centrepoint Trust (FCT) is a retail-focused real estate investment trust (REIT). It delivers sustainable growth through four growth strategies: positive rental reversions, asset enhancement initiatives (AEIs), building up a pipeline of quality malls for injection into FCT and overseas expansion. FCT’s initial portfolio comprises Causeway Point, Northpoint and Anchorpoint in Singapore. FCT was assigned a corporate rating of A3 with a stable outlook by Moody’s Investors Services in Mar 07.

Ready pipeline of acquisitions. FCT has a ready pipeline of acquisitions that will double net lettable area (NLA) to more than 1.2m sf when fully completed. It has entered into a put and call option agreement with sponsor Frasers Centrepoint Limited for the purchase of Northpoint 2 at S$139.5m-170.5m. Northpoint 2 is expected to obtain temporary occupation permit by Aug 08 and to be injected into FCT in 1QFY09. We expect YewTee Point and Bedok Mall with NLA of 80,000sf each to be injected into FCT in 3QFY09 and 2QFY11 respectively. We estimate the three new malls to contribute about 29.1% of total revenue in FY12.

Contributions from Northpoint affected by AEI. FCT commenced S$30m major AEI at Northpoint. Gross floor area will be transferred from the fourth floor to level one to three, which will provide higher rental yield. Average rental is expected to increase from S$11.00 to S$12.40psf pm after the revamp. However, contributions from Northpoint will be affected from 3QFY08 to 3QFY09 with average occupancy estimated to decline from 100% to 85%.

Initiate coverage with HOLD. FCT focuses on suburban retail malls, which provides defensive qualities. Contributions from new malls to be acquired come much later, starting 1QFY09. Growth momentum would slow down in the near term due to AEI at Northpoint. FCT provides FY08 distribution yield of 5.47%. Our fair price for FCT is S$1.39 based on two-stage dividend discount model.