Category: FCT
FCT – OCBC
Performance to get better
- 2QFY14 DPU up 6.7% YoY
- Portfolio stable despite volatility within
- Proposed acquisition to propel growth
Consistent set of 2QFY14 results
Frasers Centrepoint Trust (FCT) reported its 2QFY14 scorecard last evening. NPI and distributable income grew by 2.0% and 1.4% YoY to S$29.3m and S$23.8m respectively. The better performance was driven mainly by higher revenue from Causeway Point (CWP), though partially offset by higher property taxes, maintenance costs and property manager's fees. No cash was retained during the quarter, as opposed to S$1.2m cash reserved in prior year. As such, DPU grew at a faster pace of 6.7% YoY to 2.88 S cents. This is largely within our view, given that first-half DPU of 5.38 S cents met 47.8% of our FY14F DPU (consensus: 48.9%).
Disruptions from Bedok Point; portfolio steady
On first look, headline figures such as a 7.6% YoY decline in shopper traffic to 20.4m and 19.5ppt YoY drop in Bedok Point's occupancy to 77.0% have raised concerns. However, we understand that the fall in shopper traffic was mainly impacted by on-going refurbishment works at Bedok Point and CWP. Management projects the occupancy at Bedok Point to recover to above 95% in 2HCY14 after the lease commencement of several new tenants, which we believe will bring about improvements in occupancy and footfall. Overall, we note that portfolio occupancy has maintained steady at 96.8% (1Q: 96.7%), while rental reversions stayed robust at 9.3% (1Q: +2.5%) for the leases renewed during the quarter.
Maintain BUY with unchanged S$2.02 fair value
Looking ahead, FCT reiterated that CWP and Northpoint are expected to underpin growth within its existing portfolio, as both malls contribute to the bulk of the lease renewals in FY14-15. As announced on 8 Apr, FCT has proposed to acquire Changi City Point for
S$305.0m. No additional colour was given on the transaction, except that FCT intends to finance it using a combination of debt and equity (via private placement), and that the deal is expected to be DPU-accretive. We view this addition as timely, as it will provide another boost to DPU in an otherwise moderating growth portfolio. Maintain BUY with unchanged S$2.02 fair value on FCT.
SREITs – CIMB
Who is the strongest of them all?
Given the strong fundamentals, we are of the view that the S-REIT market is well positioned against potential interest rate hikes. Though we maintain a Neutral view on the sector, we believe REIT such as FCT is more resilient than others and offer stable yields amid a rising interest rate environment.
Amid a rising interest rate environment, we examined the resilience of the S-REITs under our coverage through analysing their respective 1) gearing, 2) debt profile, 3) sensitivity of DPS to rising interest rates, and 4) current yield spreads. Our top pick remains FCT (TP: S$2.05) for its defensiveness and strong fundamentals. Our other favourites include AREIT and CDL-HT.
A well-positioned sector
Rising leverage ratios and interest rates are commonly deemed to be the key detrimental factors to the S-REIT market. Our interest rate sensitivity study revealed that the DPS for REITs could be negatively impacted by 1.8% in FY15 and 1.7% in FY16, if interest rates were to rise by 50bp p.a. over the next three years. On this basis, we are of the view that the DPS paid out by the S-REIT sector could still be sustainable amid a potential hike in interest rates going forward.
Stronger debt profile
Although the S-REIT sector leverage ratio at 33.4% is similar to the level before the global financial crisis of 2008, debt profiles are fundamentally stronger now in light of the 1) longer debt profile, 2) larger diversity of sources of funds, and 3) amount due to be renewed is less ‘lumpy’, accounting for less than 30% of the total debt (as a sector) due for refinancing in any one year – the risks for refinancing are relatively low, in our view.
Favour FCT
Although we remain Neutral on the S-REIT sector on the back of a rising interest rate environment, FCT remains our top pick for being the most defensive in terms of fundamentals. Similarly, AREIT has a strong defensive debt profile while CDL-HT currently offers the most attractive P/BV and biggest deviation from its historical yield spread.
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.
FCT – CIMB
Strongly centred
FCT’s 1QFY9/14 results were largely in line, with DPU coming in at 23% of our FY13 number. Revenue growth of 5% yoy and NPI growth of 4.4% yoy enabled 1Q to achieve 24-25% of our full-year forecasts. Thanks to strong performances from its malls, FCT is fundamentally solid and, in our view, resilient to any external headwinds. We expect the acquisition of Changi City Point to contribute to the next stage of growth. We maintain our Add rating
with an unchanged DDM-based target price (discount rate: 8.4%) of S$2.05 as we await further acquisition news.
Strong portfolio
1QFY14 revenue came in at S$38.9m (+5.0% yoy) while DPU was 2.50 S¢ (+4.2%). The strong showing was mainly attributed to the good performance of the two larger malls in the portfolio, namely Causeway Point and Northpoint which accounted for 79% of total earnings in 1QFY14 and showed rental growth of 15.4% and 7.3%, respectively. YewTee Point also performed better, with occupancy improving to 97.1% from 92.7% in 4Q13. However, Bedok Point’s occupancy declined to 80.2% from 96.7% a quarter ago as a result of the ongoing renovation of shop spaces for incoming tenants.
Expect next growth driver from acquisition
With 19.7% and 39.9% of leases (as % of total NLA) due to be renewed in FY14 and FY15, respectively and most of these leases concentrated at Northpoint and Causeway Point, we believe that FCT will continue to post positive rental reversion for years to come. Apart from rental reversions, we expect the next growth driver to come from the acquisition of Changi City Point, which we speculate will be completed in FY14.
Maintain Add
Although the occupancy at Bedok Point may seem worrying on the surface management remained confident that its occupancy will rebound to above 90% by May when the fittings are completed. On the back of a solid portfolio, room for further rental reversions, a potential acquisition deal and strong balance sheet, we continue to favour FCT. We maintain our Add rating and DDM-based target price of S$2.05.
FCT – OCBC
Turning to acquisition for growth
- 1QFY14 DPU up 4.2% YoY
- Bigger malls continued to perform
- Possible acquisition in 2014
1QFY14 performance within view
Frasers Centrepoint Trust (FCT) released its 1QFY14 results last evening, with no surprises on its performance. NPI grew by 4.4% YoY to S$28.3m, while distributable income rose by 4.0% to S$22.7m due to improvement in revenue from Causeway Point (CWP) upon completion of its addition and alteration (A&A) works. About S$2.1m or 0.25 S cents in cash was retained for the quarter, similar to that in 1QFY13. As such, DPU increased by 4.2% to 2.50 S cents. This formed 24.4%/25.0% of our/consensus full-year DPU projections, which we deem to be consistent with expectations.
Portfolio stable despite movements within assets
CWP continued to shine in 1Q, turning in a robust 8.6% growth in NPI to S$14.1m. Northpoint also registered a 1.4% growth to S$8.8m. In addition, both malls saw robust rental reversions of 7.3%-15.4%, while occupancy rates were kept at high levels of 98.5%-99.1%. As management has previously guided, occupancy rate at YewTee Point improved by 4.4ppt QoQ to 97.1% as
new tenants started their leases during the quarter. However, its portfolio performance was somewhat dampened by Bedok Point, which saw negative reversions of 16.0% and occupancy dropped from 96.7% in the preceding quarter to 80.2% due to on-going fitting of incoming tenants and impending A&A works at the basement.
Maintain BUY
Going forward, FCT disclosed that it will continue to fine-tune the tenant mix at Bedok Point, and is willing to lower rents to keep incumbents and entice new tenants for sustainable performance. Hence, pressure on base rents and fluctuations in occupancies (possibly within 80%-95% range) are expected going forward. However, management maintains that CWP and Northpoint are likely to continue to deliver in FY14, as higher secured rentals are expected upon lease renewal. With the completion of the A&A works at CWP, FCT is also looking to acquisitions to boost growth. We understand that the strata title division of One@Changi City is on target for completion, and an acquisition of Changi City Point may happen in 2014. Maintain BUY with unchanged fair value of S$2.02.