The engine continues to chug
FCT ended FY13 on a strong note with record high distribution, largely contributed from Causeway Point and Northpoint. We expect FCT to continue to grow via rental reversions and the potentially yield-accretive acquisition of Changi City Point.
We maintain our DPU estimates and DDM-based (discount rate: 8.4%) target price of S$2.05. Under our new rating structure, we change our rating to Add from Outperform previously. We continue to see catalysts from positive rental reversions from two of its largest malls in its portfolio and a potentially yield-accretive acquisition.
In FY14, we expect FCT to continue to benefit from the revamped Causeway Point. With 31% and 37% of leases due to be renewed in FY14 and FY15, respectively, largely concentrated in Causeway Point and Northpoint – two of the top performing malls within FCT‟s portfolio, we expect rental reversions to continue for some years. Although Anchorpoint‟s and Bedok Point‟s performance was weak in 4QFY13 - mainly due to lower revenue and higher property expenses, we believe the worst is over and that the performance of these malls will stabilise henceforth. Anchorpoint‟s occupancy is expected to climb from its current level of 96.9% while rental rates at Bedok Point should steady as anchor tenants are secured.
Potential yield-accretive acquisition
The acquisition of the 207k sf Changi City Point is expected to go through during FY14. With a valuation of S$286m (as at June 13), an assumed rental rate of S$11-12psf/mth and an expected interest cost of 3.0%, this purchase could be yield accretive on 40:60 debt-equity funding. Given FCT‟s current gearing of 27.6%, translating into debt headroom of c.S$260m, based on 40% asset leverage, we believe this acquisition could benefit unitholders.
Given its strong balance sheet, further room to grow via acquisitions and rental reversions, we remain positive on FCT‟s outlook. We have an Add rating on the stock.
Publish date: 29/11/13