SINGAPORE (Jan 24): OCBC Investment Research is reiterating its “buy” call on Frasers Centrepoint Trust (FCT) following the announcement of its 1Q17 financial results last Friday. 

(See also: Fraser Centrepoint Trust reports 0.7% rise in 1Q DPU to 2.89 cents)

The research house has lowered its fair value estimate on the trust to $2.28 from $2.33 previously to factor in a steeper yield curve environment, which has led to OCBC raising its risk-free rate assumption for the trust from 2.4% to 2.7%.

In a Tuesday report, lead analyst Andy Wong says FCT’s latest set of results were in line with expectations, with gross revenue and net property income (NPI) falling 6.4% and 5.7% y-o-y mainly due to the loss of income from planned vacancies at Northpoint Shopping Centre as a result of its ongoing asset enhancement initiative (AEI).

Nonetheless, Wong believes occupancy of the Northpoint is expected to reach a trough of about 57-58% for the months of Feb to Apr this year, before recovering as the AEI approaches completion.  

The analyst says he continues to like the trust for its resilient portfolio and attractive FY17F distribution yield of 6%, and notes that FCT managed to register a robust rental reversion of 6.9% for its portfolio, notwithstanding the headwinds facing Singapore’s retail sector.

“We factor in FCT’s recent acquisition of the ten strata-titled ground floor retail units at Yishun 10 Cinema Complex in our model, and consequently raise our FY17 and FY18 DPU forecasts marginally by 0.3%,” says Wong.

“As a result of this acquisition, FCT’s gearing ratio increased slightly from 28.3% (as at end-FY16) to 29.7%, but remains one of the lowest amongst the S-REITs universe. Interest cover was also healthy at 7.3x, although its proportion of borrowings which are hedged or on fixed rates stood at 56%, as at 31 Dec 2016,” he observes.

As at 10.21am, units of FCT are trading 0.25% higher at $1.98.