FCT

FCT: Frasers Centrepoint Trust’s 1QFY16 results met the lower end of estimates. DPU climbed 4.4% y/y 2.87¢, in tandem with distributable income with rose 4.2% of $27.7m.

NPI inched up 2% to $33.5m, on the back of lower utility and maintenance expenses, although revenue dipped 0.2% to $47.1m on lower occupancy and average rent at Bedok Point.

Two main leases at Bedok Point were renewed at significantly lower rates, resulting in rental reversions of -38.2%. Portfolio reversions were +13.7% in the quarter. Shopper traffic climbed 8% y/y.

Portfolio occupancy fell 1.5ppt q/q to 94.5%, mainly from vacancies arising from fitting out. WALE stood at 1.61 years.

Aggregate leverage held steady at 28.3% with average borrowing cost of 2.36% (-4.3bps q/q).

The 18-month Northpoint AEI is expected to complete by Sep ’17. The mall remains open during the course of the AEI, but average mall occupancy is projected to be 76% between Mar and Sept (1QFY16: 96.2%). Maybank-KE does not see a swift rebound in Northpoint to high 90s as prospective tenants may eye the new Northpoint City and be put off by ongoing AEI. FCT may need to dip into its exsting kitty to support DPU if Northpoint's vacancies worsen, the house opines.

This aside, FCT needs to contend with occupancy risks and refinancing risks. The inability to lift Changi City Point and Bedok Point's committed occupancies signal a tough market, while 39% of its debt is due for refinancing in July amid a rising interest rate environment.

FCT is currently trading at 6.2% annualized 1QFY16 yield and 1x P/B.

Latest broker ratings:
HSBC maintains Buy with TP of $2.25
Credit Suisse maintains Outperform with TP of $2.24
Daiwa maintains Outperform, cuts TP to $2.11 from $2.15
JPMorgan maintains Underweight with TP of $1.90
CLSA maintains Underperform with lower TP of $1.82 from $1.85