• 4QFY14 recurring DPU up 5.9% YoY
• Positive rental reversion of 6.5% in FY14
• Expect another record for FY15

Record FY14 DPU, in-line with expectations

Frasers Centrepoint Trust (FCT) reported 4QFY14 revenue of S$46.7m, up 16.1% YoY, attributed largely to the acquisition of Changi City Point on 16 Jun 2014. DPU dipped 6.5% to 2.785 S cents, as 4QFY13 DPU included 0.35 S cents of retained cash from previous quarters. Excluding this one-off item, DPU for 4QFY14 would have increased by 5.9% YoY. For FY14, FCT’s revenue rose 6.8% to S$168.8m, or 97.3% of our estimate. Full year DPU of 11.187 S cents (+2.4%) matched our 11.2 S cents forecast, and was FCT’s eighth consecutive year of growth since its IPO.

Operating statistics still healthy

Overall portfolio occupancy stood at a healthy 98.9% (+0.4 ppt QoQ). FCT also recorded positive average rental reversions of 10.9% and 6.5% in 4QFY14 and FY14, respectively, though the latter was softer than the 7.7% reversion achieved in FY13. Despite a 3% YoY and 2% QoQ decline in shopper traffic in 4QFY14, FCT’s portfolio tenants’ sales inched up 0.6% for 11MFY14. This reflects the resiliency of its suburban malls, which depend more on nondiscretionary spending. We remain confident on the prospects of Causeway Point, Northpoint and Changi City Point, but expect the leasing environment to remain challenging at Bedok Point. Average rental rates at Bedok Point may continue to ease, but we expect NPI to improve in FY15 due to management’s efforts to turn the mall around (occupancy at Bedok Point rose from 77.0% in 2QFY14 to 98.2% in 4QFY14). FCT will continue to work closely with its anchor tenants to carry out more advertising and promotion activities.

Reiterate BUY

From a financial position perspective, FCT had a comfortable gearing ratio of 29.3%, with an average all-in cost of borrowing of just 2.51%. We fine-tune our assumptions marginally following a change in analyst coverage. Our FY15F DPU forecast of 11.8 S cents translates into a growth of 5.5% and implies another record year on the cards. We continue to like FCT for its resilient portfolio, defensive earnings and FY15F distribution yield of 6.1%. Maintain BUY and S$2.08 fair value estimate.

Source: OCBC Research - 27 Oct 2014