Vacancies in Causeway Point mall hurt FCT's portfolio

Frasers Centrepoint Trust's portfolio occupancy dropped to 83% in 2Q11 as tenants move out to give way to refurbishments.

CWP's occupancy fell to 69% this quarter compared to 86.1% in 1Q11, surpassing OCBC bank's forecast about how much the renovations would affect the mall.

As of March 31, only 33% of the construction works at CWP have been completed. Refurbishing is expected for completion by December 2012.

The exodus of tenants is not seen to have a long-term impact on the mall, as retailers have already shown "keen interest" to occupy CWP.

FCT reported pre-commitment levels running close to 99%

When completed, the enhancement initiative is seen to increase FCT's NPI by S$9.3m, with the average rent hiking up by 20% to S$12.20 psf pm.

Overall ROI for the initiative is 13% with an expected net capital value creation of S$89.9m.

OCBC has maintained its HOLD advisory for FCT stocks, reflecting its caution on the outlook for suburban malls on the back of new supply of retail space to be added in 2011-2012.

The completion of new shopping hubs is expected to depress rental growth at the neighbourhood malls, with CBRE forecasting suburban rents likely to see a maximum 3% upside in 2011 as tenant's resistance sets in.

We [are] maintain[ing] our HOLD rating for FCT, with a decreased fair value of S$1.57, on rental cap grounds and the more- than-expected drop in occupancy at CWP," the bank said.