• 2QFY16 DPU +2.6% YoY
• Positive rental reversions of 5.6%
• More details on Northpoint AEI

In-line set of 2QFY16 results

Frasers Centrepoint Trust (FCT) reported its 2QFY16 results which came in within our expectations. Gross revenue was down marginally by 0.8% YoY to S$47.1m, but NPI rose 0.4% to S$33.7m due to lower utility tariff rates and write-back of provision for property tax as a result of resolved property tax appeals and objections.

DPU increased 2.6% to 3.039 S cents although management had retained S$1.1m of taxable income available for distribution (or 0.116 S cents per unit) in 2QFY16 (2QFY15: nil). For 1HFY16, FCT’s gross revenue slipped slightly by 0.5% to S$94.2m and this made up 48.6% of our FY16 forecast. DPU of 5.909 S cents represented growth of 3.4% and formed 50.1% of our full-year forecast.

Operational metrics reflect defensiveness of portfolio

During the quarter, FCT delivered average positive rental reversions of 5.6%, with strong growth led by Changi City Point (+17.4%) and Causeway Point (+8.7%), but partially offset by Bedok Point (-26.9%). Shopper traffic grew 11.4% YoY to 25.9m, while tenants’ sales rose 2.1% for the period from Dec 2015 to Feb 2016.

Portfolio occupancy declined from 94.5% as at end Dec 2015 to 92.0% due largely to the commencement of AEI at Northpoint (NP) in Mar. We note that this AEI and its potential near-term impact had previously been well communicated by FCT to the market.

Management provided further updates, highlighting that capex for the AEI is budgeted at S$60m and this would be funded by borrowings and internal resources. Although the NLA of NP is projected to be reduced by 4% due to reconfiguration of the mall, FCT expects average gross rental rates to be boosted by ~9% following the completion of the AEI.

From 3QFY16 to 4QFY16, occupancy at NP is forecasted to hover between 72% and 86% (2QFY16: 81.7%).

Maintain BUY

Given this in-line set of results, we retain our forecasts, and reiterate our BUY rating and S$2.25 fair value on FCT. The stock currently offers FY16F distribution yield of 5.9%, based on our forecasts.

Source: OCBC Research - 25 Apr 2016