Frasers Cpt Tr: New mall to propel growth

Compared to the other properties under FCT, CCP (Changi City Point) appears to be yielding at a fair rate.

Investment Merits

• Being the only shopping mall around Expo MRT station, at this juncture, CCP is essentially a retail monopoly
• Given the factors, shopper traffic is expected to grow further which will potentially have a positive impact on its rental yield
• Low weekend traffic is well-mitigated by leveraging on frequent events and exhibitions taking place at Singapore Expo

Investment Risks

• CCP' s Weighted average lease expiry standing at 1.68 with more than 80% of tenancies expiring between 2015 and 2016
• A private placement along with debt is utilised to finance CCP' s acquisition with exact details that are not finalised yet
• Potential competition from Eastpoint Mall and Project Jewel that are set to open in late 2014 and 2018 respectively

Frasers Cpt Tr - Further details on CCP

• FCT reported 2QFY14 DPU of S¢ 2.88/unit, annualizing 6.2% and in line with JPMorgan and consensus estimates. Overall DPU was up 6.7% Y/Y from improved NPI performance (primarily at Causeway Point), coupled with a 100% payout ratio this quarter to offset weakness from refurbishment at Bedok Point. We note that the trust has retained S$2million (S¢ 0.25/unit) of distributable income to-date. Rental reversion for the quarter was strong at 9.3%, again largely driven by Causeway Point. Book value remained stable at S$1.78/unit, with gearing stable at 27.7%. The trust will trade ex-2QFY14 dividend on 28-April.
• Earnings growth back loaded due to ongoing AEIs. While overall portfolio NPI was up 2% from improved performance at Causeway Point, Bedok Mall continues to be the near-term drag due to ongoing tenant reconfiguration, with occupancy now down from 80.2% to 77%. Having said that, management expects occupancy to recover back to 95-99% post refurbishment in 2H14, which will see better earnings contributions from 4QFY14 onwards.
• Inorganic growth to be the key growth driver. The trust announced on 08-April the conditional S& P acquisition of Changi City Point for S$305million, or S$1,471psf NLA. The sponsor' s disclosure of the asset' s passing rents of S$9.08psf (as of last June) does reflect a modest level of under-renting versus typical passing rents of suburban retail malls at around S$10-12psf. Whilst no numbers have been provided, management guided for the acquisition to be funded through a combination of debt and equity. Assuming an asset yield of 5.4% and a 50-50 debt/equity funding, we estimate gearing post transaction would modestly rise from 29.7% to around 32%, with an estimated potential 2.5% accretion to our FY14E DPU estimates and a 2.7% uplift to our current NAV valuations. EGM approval will be required for this transaction.
• We retain our Neutral rating on FCT, with a Jun-14 PT of S$1.85 unchanged. Key upside risks to our rating and PT include a much stronger contribution from Causeway Point AEI and better-than-expected rental reversions. Key downside risks include the prolonged uncertainty with the sponsor.

Frasers Centrepoint Trust: Performance to get better