• 2QFY18 DPU rose 2.0% YoY
• Rental reversion +9.1%
• Northpoint ramping up

2QFY18 Results In-line With Our Expectations

Frasers Centrepoint Trust (FCT) reported an inline set of 2QFY18 results. Gross revenue and NPI jumped 6.3% and 6.9% YoY to S$48.6m and S$34.8m, respectively. This increase was driven largely by a recovery in revenue from Northpoint City North Wing (NPNW) following the completion of its AEI.

DPU rose 2.0% YoY to 3.10 S cents. For 1HFY18, FCT’s gross revenue increased 7.5% to S$96.5m and accounted for 49.5% of our FY18 forecast. DPU of 6.10 S cents represented a growth of 2.9% and formed 50.1% of our fullyear projection.

Positive Rental Reversions Led by Causeway Point

Overall portfolio occupancy inched up 1.4 ppt QoQ to 94.0%, as NPNW continued its ramp up post AEI (+7.2 ppt QoQ to 94.0%), but partially offset by Bedok Point which continues to struggle (-7.5 ppt to 77.8%). Average portfolio rental reversions came in strongly at 9.1%, underpinned by the lease renewal of an anchor tenant at Causeway Point (CP) with a +18.9% rental reversion. This bodes well for FCT’s rental income going forward as CP contributed a significant 45.0% of its 1HFY18 gross revenue. NPNW had a negative reversion of 6.1% but this was only for 2.1% of the mall’s NLA.

We understand that some period of stabilisation is needed post AEI, but most tenants are trading well. Management provided an update that it had achieved an ROI of ~10% for this major AEI. Portfolio shopper traffic, excluding NPNW, inched up 0.5% YoY. NPNW delivered a 47.8% YoY jump in aggregate tenants’ sales due to improvement in occupancy after AEI. Excluding NPNW, portfolio tenants’ sales were down slightly by 1.2% YoY from Dec 2017 to Feb 2018.

Healthy Balance Sheet

FCT’s balance sheet remains healthy, with a gearing ratio of 29.2% (-0.2 ppt QoQ), as at 31 Mar 2018. This leaves it with ample debt headroom of ~S$496m before reaching a gearing ratio of 40%. However, only 56% of its borrowings are on fixed rate/hedged, which is below the industry’s average. Given this in-line set of results, we maintain our forecasts and S$2.49 fair value estimate on FCT.

Source: OCBC Research - 26 Apr 2018