FCT – DBSV

Next step: Changi City Point acquisition

• 4Q13 DPU of 2.98Scts in line.
  
• AEI-driven reversion rates to moderate from FY14
  
• Acquisition of Changi City Point in FY14 to drive earnings
  
• Maintain BUY, TP S$2.14
  

Highlights

4Q13 results in line. FCT’s 4Q13 gross revenue grew to S$40.2m (+3% y-o-y), while NPI fell slightly to S$27.3m (-5% y-o-y). Revenue growth was attributable to higher contributions from Northpoint and Causeway Point, which together contributed c.80% of earnings, while, the decline in NPI was due to higher maintenance expenses, as well as the backdating of property tax for the Trust’s assets, which is expected to be one-off. The 4Q13 DPU of 2.98Scts includes S$2.9m in cash retained from 1H13.

NAV per unit increased 16% on revaluation gains. FCT recorded S$196m of revaluation gains, driven partly by cap rate compression of 15-25bps for all assets to 5.2%-5.6%, which is in line with other major retail malls across Singapore. NAV per unit increased to S$1.77 (vs. S$1.53 previously), and gearing decreased 2.5ppts to 27.6% correspondingly.

Our View

Strong AEI-driven reversions to moderate from FY14 onwards. In FY14, FCT will renew 32% of its income, out of which 75% will be derived from Causeway Point and Northpoint. We expect positive rental reversions from these two malls, given the strong shopper traffic and tenant sales. However, we expect more moderate reversion rates compared to previous years, as a significant amount of upside from the AEI works have already been captured. Bedok Point is likely to face increasing difficulty in operations, with competition from the larger Bedok Mall nearby. As 51% of its leases will be up for renewal in FY14, the Manager expects more tenant churn at the property going forward. Strategies that the Manager has put in place include: (i) bringing in a new anchor tenant (electronics and appliances shop) to pull in the crowd; and (ii) to reconfigure its lease structure to lower the fixed rent base with a higher turnover component, to ride out the uncertain outlook.

Acquisition of Changi City Point to be key earnings driver in FY14. According to the Manager, application for strata-subdivision at Changi City Point (CCP) ‘is progressing well’, and it is optimistic about acquiring the mall in FY14. We expect the acquisition to be completed by 2Q/3Q14.

Recommendation

Maintain BUY, TP S$2.14. Post-portfolio revaluation, the Trust is currently trading at 1.05x P/BV, which we believe is attractive, given its visible acquisition pipeline. We maintain our BUY rating, with TP unchanged at S$2.14 based on DCF.