Share Price S$1.85
Target Price S$2.15
Takeaways From Results Briefing
Results are in line. Revaluation gains of S$196m resulted in a 3ppt drop in gearing to 28%. Although near-term weakness from Bedok Point may arise due to new competition, the mall remains a small 6% of portfolio. Look ahead to the acquisition of Changi City Point in 2014 to further boost distributions. Maintain BUY with a DDM-derived target price of S$2.15.
• Results in line. Frasers Centrepoint Trust (FCT) reported a 4QFY13 distribution to unitholders of S$24.6m (+10.1%yoy, +4.6%qoq) or a DPU of 2.98 S cents (+10.0% yoy, +4.6% qoq). The total DPU for FY13, at a record-high for the trust, was 10.93 S cents (+9.2% yoy) and is in line with expectations at 99.4% of our full-year estimates.
• Revenues rise on better performance from Causeway Point and Northpoint. 4QFY13 revenues increased 3.0% yoy to S$40.2m due to rental reversions at Causeway Point and Northpoint while net property income (NPI) fell 5.0% yoy to S$27.3m, due to higher property taxes and also one-off maintenance costs. Distribution to unitholders also included S$2.9m of income previously withheld.
• Revaluation gains of S$195.7m, up 10.7% yoy, largely arising from a 15-25bps fall in the valuation cap rate to 5.35-5.60% from 5.50-5.75%, with the largest upward revaluations arising from Causeway Point (+11.9%) and Northpoint (+11.9%). NAV per share is up 16% yoy to S$1.77 due to the revaluation surplus from properties.
• Gearing fell to 27.6%, down 2.8ppt qoq (3QFY13:30.4%) following the revaluation of the portfolio properties. Borrowing costs remained largely at 2.73%, while 94% of debt is secured or hedged to fixed rates. Nearterm interest rates (3-4 years) remain largely unchanged despite the recent volatility in bond yields.
• Occupancy remained unchanged at 98.4%, but is likely to trend up as vacant units at YewTee Point (92.7% occupied) are in the process of being filled.
• Acquisition of Changi City Point likely in 2014, when the separate strata titling of the business park development is completed. FCT has a debt headroom of S$240m for acquisitions before reaching a comfortable gearing of 35%, and with the estimated value of Changi City Point at ~S$400m, we anticipate that FCT will raise both debt and equity to fund the acquisition.
• Expect near-term rental weakness at Bedok Point as the nearby Bedok Mall prepares to open by end-13. FCT will be bringing in an electronics anchor in the basement to boost footfall, while also increasing the share of gross turnover (GTO) rental to share tenancy risk. Rentals are also more competitive at S$11psf pm for Bedok Point vs S$18 psf pm for Bedok Mall. Overall portfolio impact from any near-term weakness is expected to be minimal as Bedok Point accounts for only 6.3% of FCT’s portfolio.
• Expect positive rental reversions to continue in FY14 (4QFY13: 10.8%) as 76% of portfolio due for renewal in FY14 will be from the larger Northpoint and Causeway Point malls. Management is seeing higher rental reversions at Northpoint with increased demand for space arising from the closure of nearby shophouses to facilitate the redevelopment of Yishun Central and the bus interchange.
• Further AEI potential for Northpoint may arise as sponsor Frasers Centrepoint is the winning bidder for the adjacent Yishun mixed retail/residential site. The development of the new mall will enable FCT to participate in the integration of both retail developments, resulting in a seamless 600,000sf mall (up from 240,000sf today).
• We introduce our estimates for FY2016.
• We maintain BUY with a target price of S$2.15 based on the dividend discount model (required rate of return: 6.8%, terminal growth: 1.8%) and introduce FY2016 estimates.
Share Price Catalyst
• Positive newsflow on rising retail rentals, yield-accretive acquisitions, redevelopment or asset enhancement opportunities
Publish date: 23/10/13