Portfolio exhibits resilience. FCT has (i) secured c.96% of FY09 income, and (ii) maintained positive rental reversions albeit at a tighter spread, given the tough operating climate. Renewals in 3Q09-FY10 account for c.15% of rental income, mostly from Causeway Point, its largest asset. We expect renewal activities to remain stable given strong pedestrian traffic at FCT¨s various malls.
Asset injections are a possibility in the medium term. Based on latest closing share price, FCT is trading at an implied property yield of c6.3% -6.8%, which is reasonable against its property yield of 6%. However, it remains higher than our estimated 5.0% -6.5% NPI yield for its targeted asset, Northpoint 2, based on valuation detailed in its put-call option back in Oct 07. While management remains keen to inject this asset, they have re-iterated that any deal would have to be yield accretive to the portfolio and to unitholders. In addition, other than Northpoint 2, Yew Tee Point, another sub-urban mall, has recently been completed. If these 2 assets are injected into FCT, its portfolio NLA could potentially grow by up to c.23%.
Maintain BUY, TP S$0.97. FCT currently offers an absolute return of 18%, backed by a stable FY09F-10F stable yield of 8%. Further re-rating catalysts will hinge on asset injections.
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