FCT – DBSV

Cause to remain positive

• 2Q13 results ahead
  
• Organic growth to remain stable; acquisition of Changi City Point to provide catalysts for earnings upside
  
• BUY, TP raised to S$2.33
  

Highlights

2Q13 results ahead. Frasers Centerpoint Trust (FCT)’s 2Q13 topline grew 8.4% to $39.8 million, and NPI saw a 9.7% growth to $28.7 million, attributable to higher contributions from Causeway Point and Northpoint, with other malls remaining stable. Rental reversion for the quarter was 10.1%. Causeway Point saw higher lease commencements and rental reversions upon completion of AEI works. Average gross rental was $13.52, exceeding our estimates of S$13.10. Occupancy achieved a high of 99.6%, bringing FCT’s average portfolio occupancy to 98.2%. Property expenses grew 5.5% to $11 million, attributable to higher property management fees and property taxes at Causeway Point and Northpoint. DPU grew 8% to 2.70 cents.

Our View

Organic growth to remain strong. Looking ahead, with only 7.6% of NLA due to expire for the remainder of the year, earnings in the 2HFY13 looks resilient. Management expects growth to be driven by Causeway Point (CWP) and Northpoint (NP), where close to c.37% and c.16% of the property’s leases will be up for renewal. Monthly pedestrian footfalls for CWP and NP are high at c.2m and 3.5m respectively. Although shopper traffic at Causeway Point has yet to reach pre-AEI levels but is a y-o-y increase of 22%. Management mooted for a possible re-launch, which is expected to increase the mall’s traffic. In addition, occupancy costs remaining in the midteens, we continue to expect upside during rent renewals in the coming quarters.

Changi City Point (CCP) acquisition to materialise? Management believes that the asset has stabilised and is ready for injection. FCT would like to acquire it prior to the start of its first rental cycle come FY14 where the mall is expected to see an uplift in rentals coupled with a more stabilized tenant mix.

Recommendation

BUY maintained, TP raised to S$2.33. We have tweaked our estimates for CWP upwards to account for the strong rental performance and have forecasted a CCP acquisition by end of FY13, assumed at S$400m at a yield of 5.25%, funded by a mix of debt and equity. TP is thus raised to S$2.33 based on DCF. BUY.