SINGAPORE (Oct 26): The manager of Frasers Centrepoint Trust (FCT) announced its results Wednesday, with 4Q DPU increasing 5.5% to 2.97 cents, bringing FY17 DPU to 11.90 cents, 1.2% higher than FY16.

This is the trust’s 11th straight year of DPU growth and the highest DPU achieved since its listing in 2006.

Gross revenue for 4Q17 was also up 8.1% year-on-year to $48.2 million and net property income increased 10.0% to $34.6 million.

See: Frasers Centrepoint Trust declares 5.5% higher 4Q DPU of 2.97 cents; 11th straight year of growth

Despite the positive 4Q17 and FY17 results, RHB has downgraded FCT to “hold” from “buy” with a higher target price of $2.24.

In a Thursday report, analyst Vijay Natarajan says, “While FCT has many potential near-term catalysts, we believe the strong +16% YTD rally in its share price indicates that most of the upside is already priced in.”

Moreover, the weak retail demand, higher incoming retail supply and rising e-commerce currently remains a threat towards the trust.

FCT’s asset enhancement initiative (AEI) at Northpoint City North Wing (NPNW) is almost complete and its final expenditure is likely to be below its budget of $60 million.

Post-AEI, the management noted that average rental is likely to be better than the estimated 9%, but NLA is likely to drop by a higher 7.5% compared to 4% initially, offsetting some rental increase. Occupancy rate is expected to surpass 95% by end 2017.

Meanwhile, the completion of Downtown Line 3 (DTL-3) is expected to improve shopper traffic and occupancy at Changi City Point (CCP).

Phillip Capital has also maintained its “neutral” call on FCT with a target price of $2.14.

The trust’s tenant sales in the F&B/service sector did well, while supermarket sales were stable despite Amazon’s entry into Singapore’s grocery sales and the fashion sector was rather laggard.

In a Thursday report, analyst Dehong Tan says that if tenant sales don’t improve, sustaining or improving rental reversions in FY18 could be harder to achieve

Tan recalls that for the past three financial years, Bedok Point (BP) has been struggling after the opening of Bedok Mall. The management expects occupancy to remain sluggish despite efforts to readjust tenant mix.

Nonetheless, BP is a small constituent of overall portfolio and only made up 2.8% of FY17 NPI, with FY17 occupancy at 85.2%.

“We expect any upside in rental income to be partially mitigated by a lower proportion of management fees taken in units in upcoming quarters (FY17:70% vs normalised year FY15: 20%),” says Tan.

The analyst has also projected a 3.4% improvement in DPU in FY18 driven by possible acquisitions, and improved performances in Causeway Point, North NPNW, and CCP.

On the other hand, CIMB is reiterating its “add” call on FCT with a target price of $2.38 given the trust’s robust 4Q17 results.

FCT’s portfolio occupancy increased to 92% in 4Q17, while average portfolio rental reversion was up 8.3%.

The trust has 29.2% of gross rental income expiring in FY18 and 26.9% expiring in FY19, with the bulk from Causeway Point and CCP

In a Wednesday report, analyst Lock Mun Yee says, “We anticipate FCT to continue enjoying positive rental reversions for its portfolio, given its still-manageable occupancy cost. In the medium term, the trust can also explore inorganic growth prospects given its healthy balance sheet and gearing of 29%.”

The analyst continues to like FCT for its exposure to the more stable non-discretionary retail segment and believes that the trust will continue to deliver robust earnings growth as it moved past the peak of AEI at NPNW.

As at 10.48am, units in FCT are trading at $2.22.