Towards Financial Freedom
FRASERS CENTREPOINT TRUST - Another new high
3QFY12 DPU slightly better than expected. Frasers Centrepoint Trust (FCT) reported a 3QFY12 DPU of 2.60S'' (+33.3%YoY). Together with 1H12 DPU of 4.70S'', the three quarters results translates to 78.2% of our FY12 DPU estimate. Revenue for 3QFY12 grew to S$35.5m (+30.2% YoY) while net property income rose to S$24.6m (+32.1% YoY). These strong growths are mainly attributed to additional contributions from Causeway Point (CWP) and Bedok Point together with lower borrowing costs. In the subsequent quarters, we expect FCT to continue to register stronger numberson the back of 1) increased contributions from CWP as average occupancy and rental rates continue to pick up from its lows during the initial stageof AEI, 2) new contributions from Bedok Point and 3) positive rental reversions in suburban malls to continue. Given FCT's defensive portfolio, potential to acquire Changi CityPoint in FY13 and the recent drop in 10 year bond yield to 1.36%, we maintain our BUY call on FCT with a slight upward revision in our DDM based (COE: 8.3%, terminal growth: 2.0%) TP of S$1.89.
Positive growth from CWP and Bedok Point. Going forward, we expect market confidence for rental rates in suburban malls to remain intact as international brands continue to take up space in malls with high shopper traffic. Additionally, we expect FCT's DPUto continue to grow on the back of additional contributions from both CWP and Bedok Point. Currently, works at CWP are on track for full completion by December 2012, while Bedok Point continues to grow strongly; contributing S$3.06m to the group's 3QFY12 revenue.
Falling risk-free rate leads to further upside in share price. In view of a volatile global market, Singapore government 10-year bond has fallen to 1.36% from 1.75% since March as investors continue to view Singapore bonds as a safe investment haven. Taking this into retrospect, together with FCT's highly defensive portfolio and better than expected results, we have adjusted the risk free rate in our DDM assumption from the previous 1.8% to 1.4%, together with the increase in revenue on this counter, we have fine-tuned our model, raising the TP by 4.5% to S$1.89.
Maintain BUY with revised TP to S$1.89. As the outlook for suburban malls remains strong, together with the increase in spread due to the falling in 10 year bonds rate and respectableDPU growth for the rest of the year, we continue to maintain our BUY ratingwith a slight upward revision in TP to S$1.89.
Currently trading at 4.5% spread to 10-year bond yield. We value FCT at a TP of S$1.89 based on DDM (COE: 8.3%; TGR: 2.0%). FCT is currently trading at 4.5% spread to 10-year bond yield, which is 268bps above its pre crisis mean spread of 1.8%, based on FY12 DPU.
Positive growth from CWP and Bedok Point. Going forward, we expect market confidence for rental rates in suburban malls to remain intact as international brands continue to take up space in malls with high shopper traffic. Additionally, we expect FCT's DPUto continue to grow on the back of additional contributions from both CWP and Bedok Point. Currently, works at CWP are on track for full completion by December 2012, while Bedok Point continues to grow strongly; contributing S$3.06m to the group's 3QFY12 revenue.
Falling risk-free rate leads to further upside in share price. In view of a volatile global market, Singapore government 10-year bond has fallen to 1.36% from 1.75% since March as investors continue to view Singapore bonds as a safe investment haven. Taking this into retrospect, together with FCT's highly defensive portfolio and better than expected results, we have adjusted the risk free rate in our DDM assumption from the previous 1.8% to 1.4%, together with the increase in revenue on this counter, we have fine-tuned our model, raising the TP by 4.5% to S$1.89.
Maintain BUY with revised TP to S$1.89. As the outlook for suburban malls remains strong, together with the increase in spread due to the falling in 10 year bonds rate and respectableDPU growth for the rest of the year, we continue to maintain our BUY ratingwith a slight upward revision in TP to S$1.89.
Strong positive rental reversion over nine months. During the first nine months of the financial year, FCT posted a positive average increment in rental rates of 12.5% for renewed leases across its portfolio. During 3Q12, FCT achieved a strong average positive rental reversion of 27.2% in its portfolio. This is mainly contributed by a positive rental reversion of 42.9% from Northpoint, attributed by a single lease contracted at a significantly higher rate as compared to the preceding lease.
Well staggered lease expiry profile. Through FCT's proficient management, the expiry profile in FY12 has dropped to 4.1% of gross rental in June. Given the large catchment population in FCT's suburban malls, we believe the trust will be able to further lower its FY12 expiry profile to a low single digit in the coming months.
Possible acquisition in the future. Changi City Point, a new mall with a NLA of 207,000 sq ft is currently in operation. This mall is currently located next to the future campus of SUTD should be able to enjoy high shopper traffic in the future when the campus is ready in 2014. Given its strategic area together with the suburban nature of the mall (located next to Singapore Expo) we expect this to be the next acquisition target by FCT - possibly by next year.
Possible acquisition for next year.
New development by Ascendas and Frasers Cenre Point. A joint development between Ascendas Land (Singapore) and Frasers Centre point, Changi City point is a three-storey mall featuring a basement car park and a roof top garden play area with a 450-seat arena.
Expect high traffic going forward. Situated in Singapore's largest integrated business park, Changi City Point Mall attracts a diverse range of patrons. Featuring key retailers such as Cold Storage, Nike Factory Outlet and Challenger, we expect the mall to be patronized by both the local Tanah Merah residents and the overflow of consumers from Tampines for their daily necessities. With over 40 varied F&B outlets and being the only mall in the immediate vicinity, Changi City Point also attracts office workers from the nearby Changi Business Park and visitors of the Singapore Expo Center. Furthermore, with the upcoming Singapore University of Technology and Design Changi campus, we expect significant increase in traffic flows to the mall when the campus becomes operational in 2014.
Forecasted cap rate of 6.8%-7.2%. As of Jul12 the occupancy rate of the mall is optimistic at 97%. By assuming an average monthly rent of $11.0-12.0/sq ft. Together with a NLA of 207,000 sq ft and an estimated valuation of S$300m (assuming a margin of 70% and an average rent of $19/sq ft); we expect this mall to achieve a cap rate of 6.5-7.0%.
Source: OSK
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