SINGAPORE (Jan 24): OCBC and CIMB are maintaining their "add" call on Frasers Centrepoint Trust for its exposure to the more stable non-discretionary retail segment and a decent set of 1Q18 results which met expectations of both research houses.
Gross revenue and net property income for 1Q18 rose 8.7% and 9.1% y-o-y to $47.9 million and $34.5 million. The improved results were due to a 39.5% y-o-y jump in Northpoint North Wing (NPNW) revenue, on completion of its AEI, and higher rental revenue from Causeway Point (CP) and Changi City Point (CCP).
1Q18 DPU of 3.00 cents grew a slower 3.8% y-o-y as the manager accepted less than half its fees in units although this met expectations of OCBC and CIMB, accounting for 24.6% and 24% of full-year forecasts respectively.
Looking ahead, OCBC and CIMB expect operational improvement at NPNW and CCP as management ramps up the occupancy at these two malls. Portfolio occupancy rose 0.6 ppt q-o-q to 92.6% with higher take-up of 86.8% at NPNW.
"We expect occupancy rate to trend higher in the coming quarters as more retailers commence operations. The property is 99% leased," says OCBC lead analyst Andy Wong in a Wednesday report.
Following the completion of the NPNW AEI, average rent achieved for the property was 9% higher thanks to tenant remixing and ability to improve rental returns.
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After the makeover, F&B tenants make up a larger 36.9% of NLA while fashion, supermarket and services/education trades accounted for a smaller 26.4%. New F&B concepts and brands include Putien, Takezo Ramen and Jinjja!! Chicken, to name a few.
According to CIMB, FCT has another 18.7% of gross rental income expiring for the remainder of FY18 and 26.9% in FY19. The bulk of the FY18 renewals are at Causeway Point, NPNW, CCP and YewTee Point.
"We expect the trust to continue achieving positive rental reversion given its well located suburban malls. In the medium term, the trust can explore inorganic growth prospects given its low gearing of 29.4%," says CIMB lead analyst Lock Mun Yee in a Tuesday report.
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Elsewhere, DBS is also maintaining a"buy" with higher target price of $2.48 as rental reversions at key assets are adjusted higher.
"We are more optimistic than the street as we are forecasting 7% (vs consensus 2.5%) increase in DPU in FY18 as Northpoint returns to full operations, and c.4-5% DPU growth p.a. in the next couple of years, whereas consensus believes DPU will stay flat," says the research house in a Wednesday report.
Given the enlarged footprint and lack of supply in the north of Singapore, the research house says FCT retains its bargaining power in the region.
The acquisition of a one-third stake in Waterway Point from sponsor Frasers Centrepoint will fuel further upside to earnings as FCT’s low gearing of 30% means the trust will have the financial muscle to fund the acquisition.
As at 2.28pm, units in FCT are trading 1 cent lower at $2.23 or 5.7% FY19 yield.
