Frasers Centrepoint Trust: Bedok Point acquisition imminent (DMG)

(BUY, S$1.56, TP S$1.77)

3QFY11 results slightly below expectation; expect strong 4QFY11. Frasers Centrepoint Trust (FCT) reported 3QFY11 DPU of 1.95S¢ (-5.8% QoQ; -5.8% YoY), which represents 24% of our FY11 estimate. Net property income fell 13.4% YoY to S$20.1m (-7.2% QoQ) mainly due to income loss from the asset enhancement initiatives (AEI) at Causeway Point (CWP). For the upcoming 4QFY11, we expect DPU to be stronger at 2.02S¢ on the back of higher occupancy rate at CWP as a result of greater level of AEI completion. Separately, FCT now expects Bedok Point to be acquired in 4QFY11. The addition of Bedok Point will add additional 81k sqft of NLA, which represents ~10% of FCT’s Singapore portfolio NLA (excludes NLA from 33% stake in Hekhtar REIT). Maintain BUY with unchanged TP of S$1.77.

Time lag between AEI impact and rental payment resulted in lower revenue QoQ. CWP’s occupancy was at its lowest in QEMar2011 at 69% since the commencement of CWP AEI. Due to time lag difference, the negative impact of lower occupancy rate only hit FCT in 3QFY11 which registered gross revenue drop of 11.1% YoY to S$27.3m (-5.3% QoQ). However, with the swift progress of AEI and higher occupancy of 78% as at Jun 2011, we expect CWP to drive the revenue and DPU growth for FCT in 4QFY11. Management has indicated that the progress is ahead of plan with occupancy rate at CWP expected to hit 90% from Aug 2011 onwards. In addition, current average passing rent for the refurbished space at CWP is said to be in excess of the projected figure of S$12.20 psf pm.

Bedok Point acquisition expected in 4QFY11. We expect Bedok Point acquisition to be completed in the next two months. Situated within 5km of Bedok MRT station, Bedok Point has an estimated catchment population of 295k. Its current occupancy rate is 98% which is comparable vis-à-vis FCT’s portfolio ex-Causeway Point estimated occupancy of 99%. Almost 40% of Bedok Point space is taken up by food and beverage tenants. Should the acquisition go ahead, we believe the management is likely to fund the acquisition via equity/debt mix.