Causeway Point helps FCT post record quarterly, full-year DPUs

Q4 DPU rises 8.8% to 2.35 cents, taking FY11 DPU to 8.32 cents; Q4 NPI jumps 13.7%

FRASERS Centrepoint Trust (FCT) yesterday posted record quarterly and full-year distributions per unit (DPUs), helped by the strong performance upswing of Causeway Point.

For the fourth quarter ended September, FCT’s DPU was 2.35 cents, an 8.8 per cent year-on-year increase from Q4 2010’s 2.16 cents.

This brings the total DPU for the financial year ended September (FY 2011) to a record 8.32 cents, up 1.5 per cent from FY 2010’s 8.20 cents. FCT said this represents the fifth consecutive year of DPU growth since its listing.

Distribution to unitholders for the quarter rose 10.8 per cent to $18.3 million. Net property income (NPI) climbed 13.7 per cent to $25.3 million.

Causeway Point, FCT’s largest asset, posted a strong quarterly performance, following the re-opening of its revamped sections (basement and first two levels of the mall).

It posted revenue of $17.3 million, 61.7 per cent higher than the preceding quarter. Similarly, its NPI improved 95.6 per cent over Q3 2011 to $13.3 million.

As at Sept 30, 65.5 per cent of Causeway Point’s refurbishment works were completed, with full completion expected end next year, said FCT. The next phase of work is shifted to higher levels, where any disruption to revenue will be more muted.

A sharp recovery in occupancy at Causeway Point – from 78.3 per cent the previous quarter to 92.0 per cent – also contributed to an overall improvement in FCT’s portfolio occupancy, which as at end September stood at 95.1 per cent, up from 87.6 per cent the previous quarter.

FCT’s total assets grew 17.9 per cent year on year to about $1.79 billion, on higher property valuation and the acquisition of Bedok Point. FCT recognised a revaluation surplus of $97.2 million (after adjustments), with Causeway Point contributing $59.2 million.

In the acquisition pipeline is Changi City Point and The Centrepoint, which will feed an additional 602,794 sq ft of net lettable area (NLA) into FCT’s portfolio of 879,780 sq ft NLA.

Following the private placement of 48.0 million new units issued on Sept 23 to part finance the Bedok Point acquisition, pre-existing unitholders will receive an advance distribution of distributable income for the period of July 1 to Sept 22.

The books closure date for the advance distribution is Sept 22 and it will be paid on Nov 8. New units will not be entitled to this advance distribution.

The next distribution will comprise distributable income from Sept 23 to Dec 31. Quarterly distributions will resume thereafter.

FCT ended trading on the stock market yesterday at $1.47, gaining 1.5 cents.

Fine end to a record year

FY11 ended on a high note for FCT, aided by a rebound in occupancy and rental reversions from a partially-refurbished Causeway Point. We continue to like its resilient suburban retail exposure and seethe refurbishment of Causeway Point as a key game-changer.

FY11 DPU was spot on for us though slightly above consensus. 4Q11 DPU forms 28% of our estimate on stronger Causeway Point contributions. We raise our DPU estimates and DDM-based target price (discount rate 8.4%) on lower interest costs. Maintain Outperform.

Positive rental reversions; strong occupancy

We expect a further pick-up in occupancy at Causeway Point and positive rental reversions. 4Q was marked by a sharp recovery in occupancy there and rental reversions (8.6% for FY11, 7.9% for 4Q11, 7.2% for FY10) for its portfolio. Occupancy at its other assets also held up above 95%.

Causeway Point a potential game-changer

Having gone through the most intensive period of AEI with good rental reversions for refurbished space, Causeway Point could change the game for FCT in FY12. Occupancy surged to 92% from a trough of 69% in 2Q and is expected to sustain above 90% in FY12. With 65.5% of the refurbishment completed, work should henceforth be less disruptive, given its progression to higher levels.

Pleasant surprise from lower costs of borrowing

Interest cost savings should continue. Management refinanced its S$260m 4.12% p.a. CMBS in July and hedged this at a low interest cost of 3.09%. This brought effective borrowing rate down to 3.0% from 3Q’s 3.8%. Refinancing of its S$75m MTN due in 2012 should generate further savings, given a high cost of 4.8%. After the drawdown for the Bedok Point acquisition and revaluation of its portfolio, asset leverage was a healthy 31%.

Expect another high note

At a Glance

• FY11 DPU of 8.32 Sct was slightly above our expectation of 8.2 Sct

• Revenue to trend up supported by multipronged growth engines; gearing healthy at 31%

• Good defensive stock; maintain BUY, TP raised slightly to S$1.76

Comment on Results

FY11 DPU of 8.32cts at a record high. On a y-o-y basis, 4Q11 revenue and NPI rose 5.1% and 13.7% to S$34.1m and S$25.3m respectively on the back of strong portfolio performance and partial completion of the AEI works at Causeway Point. Portfolio occupancy strengthened from 87.6% a quarter ago to 95.1% and the group renewed 34,161sf of retail space at 7.9% higher than the preceding rents. Consequently, distribution income rose 10.8% to S$18.3m, translating to a DPU of 2.35 Scts. There was net revaluation gain of S$97.2m, largely from Causeway Point and North Point at slightly compressed cap rates (lowered by 10 to 25bps), as well as Bedok Point bringing portfolio value to S$1.7bn or book NAV of S$1.40/unit (+8.5% y-o-y).

Revenue drivers all set for next year. Going forward, we expect to see steady income growth from (1) full year contribution from Bedok Point from 1QFY12 – expected to add about S$7m p.a. at NPI level; (2) progressive completion of AEI works at Causeway Point and reopening of the refurbished sections at the basement, level 1 and 2; (3) ability to continue to drive rental reversions with 35% of its portfolio NLA up for renewal in FY12. 98% of the leases have step-up rental clauses and we expect 3-5% rental reversion in FY12; and (4) interest savings from refinancing of the S$80m revolving loan.

Recommendation

Yield for FY12 at 6.1%, Maintain BUY. We continue to like FCT for its pure exposure to the resilient and stable suburban market. Balance sheet remains robust with 31.3% gearing. We nudge up FY12F DPU by 1.6% after including the additional income from Bedok Mall. Maintain BUY with a slightly higher DCF-based TP of S$1.76 as we roll our numbers forward into FY12.

Mall visits fuel further positivity

• Mall visits fuel further positivity. We visited FCT’s Causeway Point and its newly acquired Bedok Point recently. Shopper traffic was decent at Bedok Point though we see room for improvement in occupancy and tenant mix. Causeway Point was bustling despite major AEI work and ROI may beat management’s target of 13%. As FCT’s largest asset, we see the refurbishment of Causeway Point as a potential game-changer for FCT. With funding details concluded, we factor in the acquisition of Bedok Point and raise our FY12-13 DPU estimates by less than 1%. Our DDM based target price is, however, unchanged at S$1.63 (discount rate 8.4%). We continue to like FCT’s exposure to resilient suburban retail assets and strong balance sheet (34% after acquisition), anticipating catalysts from stronger-than expected rentals for Causeway Point after its refurbishment and improved stock liquidity.

• Bedok Point: decent mall with scope for improvement. Shopper traffic was relatively light during our visit on a late weekday afternoon though it is not hard to imagine a packed mall during lunch and dinner time given its high F&B content. We see room for improvement in occupancy and tenant mix.

• Causeway Point: the real game-changer. Causeway Point was bustling during our visit on a weekend afternoon despite ongoing AEI. We like its open-store concept, brighter and wider passageways, new-to-market brands and more higher-end retail offerings after AEI and see the potential for the mall to beat management’s ROI target for the refurbishment.

FCT raises $64m from placement

The trust will use the money raised to part-finance Bedok Point’s acquisition

FRASERS Centrepoint Trust (FCT) has raised net proceeds of $64.3 million from a private placement of units, to partially fund the acquisition of Bedok Point.

The private placement saw strong demand from more than 30 new and existing institutional investors in Asia and Europe, with the subscription rate coming in at around 4.1 times. The new units were priced at $1.39 each, which is at the top of the $1.35-1.39 offer price range announced on Wednesday night.

The offer price carries a discount of about 2.5 per cent to FCT’s adjusted volume-weighted average unit price of $1.426, for trades done on Wednesday.

‘The strong investor demand for the placement in FCT’s units amidst a volatile market environment demonstrates investors’ confidence in FCT’s growth strategy and its potential to deliver attractive total returns to its unitholders,’ said Philip Eng, chairman of FCT’s manager.

Given the high subscription rate, FCT’s sponsor Frasers Centrepoint Limited will not be taking up its pro rata portion of units in the private placement. This will help increase FCT’s trading liquidity.

FCT will use the money raised to part-finance the acquisition of Bedok Point. It will be using both debt and equity to purchase the mall, at an acquisition cost of around $129.1 million.

FCT expects to issue new units from the private placement on or around Sept 23. For existing unitholders, it will be declaring an advance distribution of distributable income for the period of July 1 to the day immediately before the date on which the new units will be issued.

The new units will not be entitled to this advance distribution. The books closure date for the advance distribution is Sept 22 and it will be paid on or around Nov 8.

The next distribution will comprise the distributable income from the day the new units are issued to Dec 31. Quarterly distributions will resume thereafter.

FCT ended trading on the stock market yesterday at $1.44, shedding 1.5 cents.