Frasers Centrepoint Trust - Waiting for year-end bonus (DBSVickers)

BUY S$1.56

Price Target : S$ 1.73

At a Glance

• In line with expectation and on track to meet our full year estimates.

• 51% of completed CWP AEI works at prime levels to underpin earning growth; DPU accretive Bedok Point acquisition likely within next quarter.

• Maintain BUY, TP $1.73 for 17% total return

Comment on Results

FCT 3Q results is in line with expectations. The 11.1% and 13.4% yoy decline in gross revenue and net property income to S$27.3 m and S$18.7 m respectively were expected. Lower contribution from Causeway Point (CWP), currently under renovation, was the key factor but performance was partially offset by the stable occupancies at its other retail malls as well as healthy rental reversions (+3.8%) enjoyed in 3Q. On a q-o-q basis, gross revenue and NPI dipped marginally by 3.5% and 4.0% respectively. Distributable income was S$15.08m (-5.8% yoy, -5.7% qoq) including the S$0.3m retained from the previous quarter, translating to a DPU of 1.95 Scts. DPU achieved in the first 3 quarters form c.72% of our full year estimates and we believe that the group is on track to meet our estimates.

Improving occupancies at CWP to underpin earning growth. Portfolio occupancy increased from 83% a quarter ago to 88% in 3Q with the completion of 51% of the AEI works at CWP. They are mostly at B1 and Level 1, the most prime space of the mall. CWP’s occupancy rate rebounded from 69% to 78% and should hover above 90% from 4Q11 onwards. About 95% of the AEI works has been pre-committed and is expected to see at least a 20% increase in average rent from the current S$10.2 psf pm post AEI works. Meanwhile, the group has refinanced S$260m with a 5-year loan facility at a more attractive rate, lowering all-in interest rate from 3.83% to about c.3.68% and should enjoy some interest savings going forward. Gearing is at a healthy 31.7%.

Recommendation

We believe that the group is on track to meet our estimates on the back of strong portfolio performance. Our forecasts exclude acquisition of Bedok Point, which will likely materialise within the next quarter. The stock offers FY11/12F yields of 5.4%-5.7%, translating to a total return of 17%.