• 1QFY15 DPU +10% YoY
• Positive rental reversion of 7.7% in 1QFY15
• Lower discount rate and raise FV

1QFY15 results in-line with expectations

Frasers Centrepoint Trust (FCT) started FY15 on a bright note, recording a 10.0% YoY growth in its 1QFY15 DPU to 2.75 S cents on the back of a 18.3% increase in growth revenue to S$47.2m. This constituted 23.3% and 24.1% of our full-year forecasts, respectively. If we include S$1.4m (0.15 S cents per unit) of income retained, which we expect FCT to distribute in 2HFY15, adjusted DPU would have formed 24.6% of our FY15 projection, in-line with our expectations. Growth was driven largely by contribution from Changi City Point (CCP) which was acquired in Jun 2014, as well as organic growth from its other assets, with the exception of Bedok Point (BP). Although revenue and NPI for BP declined 12.5% and 24.2% YoY, respectively, this property contributed only 4.2% of FCT’s 1QFY15 NPI.

Operational metrics highlight resiliency

Management recorded robust rental reversions of 7.7% for its entire portfolio, with growth underpinned by CCP (+10.7%), Causeway Point (+9.1%) and YewTee Point (+8.8%), with a slight drag coming from BP (-1.3%). Management sounded a word of caution, highlighting that lease negotiations at CCP had started several months back and market conditions has since become more challenging. Hence the 10.7% reversion figure should not be used as a benchmark for the remaining leases to be renewed. Nevertheless, only 9.5% of CCP’s NLA is expiring for the remainder of FY15. Portfolio occupancy fell slightly from 98.9% to 96.4%, but this was partly due to transitional vacancies (i.e. space that has already been committed but tenants carrying out fit out works). We thus expect occupancy to improve in the coming quarter. FCT’s gearing ratio was unchanged at a healthy 29.3%, with 87% of its debt hedged or on a fixed rate basis (end FY14: 75%).

Reiterate BUY

We keep our forecasts intact given this set of in-line results. However, we are raising our fair value on FCT from S$2.08 to S$2.27 as we lower our cost of equity assumptions from 7.5% to 7.0%. This is to take into account FCT’s continued resilient and defensive We keep our forecasts intact given this set of in-line results. However, we are raising our fair value on FCT from S$2.08 to S$2.27 as we lower our cost of equity assumptions from 7.5% to 7.0%. This is to take into account FCT’s continued resilient and defensive portfolio performance, and strong financial position. Maintain BUY.

Source: OCBC Research - 26 Jan 2015