• 4QFY18 DPU dipped 3.6% YoY
• Cap rate compression
• Rental reversion +0.2% for quarter

4QFY18 Results In-line With Our Expectations

Frasers Centrepoint Trust (FCT) reported an inline set of 4QFY18 results. Gross revenue rose 0.5% YoY to S$48.5m, but NPI was down 4.9% to S$32.9m due to higher property tax for Northpoint City North Wing (NPNW) and increases in utilities tariff rates, professional fees and more ad-hoc repair and replacement works. Some of these expenses are one-off in nature.

Results were also impacted by FRS 17 and 39 accounting adjustments (no impact on distributable income). Excluding this, 4QFY18 revenue would have increased 5.3% YoY to S$48.2m and NPI would have been 1.4% higher at S$32.6m. 4QFY18 DPU fell 3.6% YoY to 2.862 S cents. If we strip out the one-off property expenses as highlighted earlier, DPU would have come in flat.

For FY18, FCT’s gross revenue and NPI grew 6.5% and 5.9% to S$193.3m and S$137.2m, respectively. DPU of 12.02 S cents represented growth of 1.0%, and constituted 98.7% of our FY18 projection.

Cap Rates Tightened Across Most Assets

All of FCT’s properties, with the exception of NPNW, saw a compression in cap rates by 15-25 bps during its valuation exercise. This was due to transactions observed in the market and a change in valuer for some of the properties. Although Bedok Point and Yishun 10 retail podium registered a lower valuation, this was offset by increases for the other properties, such that overall portfolio valuation rose 3.0% to S$2.75b.

Expecting Higher Occupancy Ahead

FCT’s portfolio occupancy improved 0.7 ppt QoQ to 94.7%. Bedok Point and Anchorpoint have secured leasing commitment from new F&B tenants and hence their occupancy is expected to increase ahead. Overall rental reversions came in at only a mild +0.2% in 4QFY18, but were 3.2% higher for the full-year (FY17: 5.1%).

Northpoint City’s shopper traffic (includes both North Wing and South Wing) jumped 36.5% YoY following the completion of its AEI. Excluding this, FCT’s portfolio footfall still rose a commendable 5.0%.

Tenants’ sales (Jun-Aug 2018) grew 3.6% YoY. We trim our DPU forecasts for FY19 and FY20 by 2.1% and 2.4%, respectively, as we factor in higher finance costs and lower distribution from associates and JVs. As we also roll forward our valuations, our fair value inches up from S$2.49 to S$2.50.

Source: OCBC Research - 25 Oct 2018