By Meenal Kumar
Mon, 26 Jul 2010, 08:59:12 SGT

Frasers Centrepoint Trust (FCT) reported S$30.7m in 3QFY10 revenue, up 44.7% YoY and 8.6% QoQ. FCT will distribute 2.07 S cents for the quarter, up 6.7% YoY and 0.5% QoQ, despite dilution from the 2Q10 placement. The results were in line with our estimates, with DPU just 0.7% shy of our 2.08 S cents estimate. The manager has embarked on its asset enhancement initiative for Causeway Point (CP). FCT guided that it expects passing rent at CP to rise from S$10.70 currently to S$12.20 post-AEI, an increase of 14%. We have refined our assumptions based on FCT’s guidance on post-AEI rents. We also reduce our DPU estimates for FY10 and FY11 by 2.8% and 8.4% to 8.1 S cents and 7.8 S cents respectively to reflect near-term disruption to DPU from asset works. Our fair value drops marginally from S$1.50 previously to S$1.49, but we see long-term value as the CP enhancement is likely to maximize returns from FCT’s portfolio, both by refreshing the mall and optimizing income. Maintain BUY with 13% estimated total return.

Results in line. Frasers Centrepoint Trust (FCT) reported S$30.7m in 3QFY10 revenue, up 44.7% YoY and 8.6% QoQ. The strong gains were due to full contributions from Northpoint 2 (NP2) and YewTee Point (YP), the purchase of which was completed mid-2QFY10 on 05 Feb. The recent completion of asset enhancement initiatives at Northpoint (NP) also boosted revenue. FCT will distribute 2.07 S cents for the quarter, up 6.7% YoY and 0.5% QoQ, despite dilution from the 2QFY10 placement. The results were in line with our estimates, with DPU just 0.7% shy of our 2.08 S cents estimate. FCT has retained S$1.6m in distributable income for 9M10; this amount will be paid out to unitholders in 4QFY10. Portfolio occupancy was stable at 99.4%. All the properties enjoy occupancy above the 98% mark, with Causeway Point (CP) and NP2 at 100%.

CP enhancement a go. The manager has embarked on its asset enhancement initiative for CP. The initiative will reduce the space leased to big box / anchor tenants down from 65% to 50%; this is still a higher proportion than what we had expected but nevertheless, the increased weighting to higher-yield specialty stores will boost mall efficiency and per square foot return. FCT guided that it expects passing rent at CP to rise from S$10.70 currently to S$12.20 post-AEI, an increase of 14%. NLA will increase marginally from 418k sf to 420k sf. The S$71.8m initiative will be carried out over 30 months to minimize disruption to mall operations and to distributable income. We understand occupancy may decline to roughly 70% at the peak of the asset works, but for the most part, it will remain at between 80-90% during the enhancement period. In contrast, occupancy at NP had fallen to sub-50% during its AEI period.

Valuation. We have refined our assumptions based on FCT’s guidance on post-AEI rents. We also reduce our DPU estimates for FY10 and FY11 by 2.8% and 8.4% to 8.1 S cents and 7.8 S cents respectively to reflect near-term disruption to DPU from asset works. Our fair value drops marginally from S$1.50 previously to S$1.49, but we see long-term value as the CP enhancement is likely to maximize returns from FCT’s portfolio, both by refreshing the mall and optimizing income. FCT also gave, for the first time, a clear indication that it targets to acquire Bedok Point in CY2011; the mall is currently under construction but leasing commitments have already exceeded 90%. Maintain BUY with 13% estimated total return.