FCT – DBSV

Stronger performance at Causeway Point and Northpoint offset weaker Bedok Point

• Organic growth to be driven by positive rental reversions at Causeway Point and Northpoint
  
• Growth catalyst: acquisition of Changi City Point
  
• Maintain BUY, TP S$2.14
  

Highlights

1QFY14 results in line. Gross revenue grew 5% y-o-y to S$39.9m, while NPI rose 4.4% to S$28.3m due to higher marketing, maintenance and property tax expenses. After retaining S$2.1m (0.25cts), distribution amounted to S$20.6m or 2.5cts/unit, up 4.3% y-o-y. Overall occupancy slipped to 96.7%, but topline was lifted by an average 2.5% hike in average rents compared to preceeding rates, with the strongest reversion of 15.4% at CP, post AEI, and 7.3% at NP. This more than offset weaker rental income from Bedok Point, which saw negative reversions (-16%) and a lower occupancy rate of 80% as a result of competition from new malls nearby.

Our View

Organic growth from positive rental reversions. The Trust has about 20% of NLA expiring in FY14 and 40% expiring in FY15. The bulk of the leases to be renewed are in NP and CP, and Bedok Point. We believe CP and NP should continue to enjoy positive rental reversions with robust shopper footfalls that are growing sequentially. Ongoing adjustments to tenant mix at Bedok Point to reposition the mall implies still high frictional vacancy of 5-10% in the short term, and lower average rents (high single digit vs low double digit currently) when stable. This could drag the value of Bedok Point in the longer run, although it accounts for only 7% of portfolio revenue and 6% of AUM. Next catalyst will be new acquisitions, namely Changi City Point. Application for strata sub-division for this mall is on track and when completed, can be acquired, likely in FY14. With gearing at 28% post-repayment of the S$60m MTN, FCT’s balance sheet is well positioned to take on more acquisitions to drive growth.

Recommendation

Maintain Buy, TP $2.14. FCT is trading at 6.4% FY14F and 6.9% FY15F yield. Our TP offers 27% total return.