• 2QFY19 DPU rose 1.2% YoY
• New CEO to come from sponsor
• FV raised to S$2.61

2QFY19 Results Met Expectations

Frasers Centrepoint Trust’s (FCT) 2QFY19 results met our expectations. Gross revenue, NPI and DPU rose 2.3%, 4.8% and 1.2% YoY to S$49.7m, S$36.4m, and 3.14 S cents, respectively. For 1HFY19, FCT’s NPI increased 3.6% to S$71.8m, while DPU of 6.157 S cents represented growth of 0.9%, and accounted for 50.4% of our full-year projection. Operationally, FCT achieved positive rental reversions of 2.0% in 2QFY19 (1HFY19: +5.4%).

All malls recorded higher rental uplifts, except Changi City Point, which registered rental reversions of -5.0%. Portfolio occupancy came off marginally by 0.4 ppt to 96.0%. Shopper traffic for FCT’s portfolio rose 2.4%, but tenants’ sales declined 1.3% (period from Dec 2018 to Feb 2019) and this was attributed largely to transitional vacancies at Causeway Point, including the temporary closure of one of its food courts for renovation.

New CEO Found

FCT announced recently that it has appointed Mr. Richard Ng, 51, as CEO-Designate of its Manager as of 15 Apr 2019. He will then take over as CEO from the current CEO Dr. Chew Tuan Chiong with effect from 1 Jul this year. This lifts the overhang on FCT’s search for a new CEO, coupled with the fact that the incoming CEO has the all the right attributes to continue FCT’s well-established track record, in our view.

Firstly, Mr. Richard Ng is a veteran in the real estate industry with 27 years of experience, a large part of which focused on Singapore retail. This includes a 14- year stint with CapitaLand, and slightly more than four years at PGIM (Singapore) Pte. Ltd. This would be useful given FCT’s recent acquisition of a 17.1% interest (pending completion of an additional 1.7% stake) in PGIM Real Estate AsiaRetail Fund Limited (PGIM ARF).

Last but not least, Mr. Richard Ng’s current role as Head of Asset Management at Frasers Property Singapore would mean that the cultural fit and transition would likely be smooth.

Incorporating PGIM ARF Transaction in Our Model

We now incorporate the PGIM ARF transaction in our model, and assume a 40-60% equity and debt mix in terms of the funding structure. As such, our FY19 and FY20 DPU forecasts are raised by 0.2% and 0.4%, respectively. As we also lower our risk free rate assumption by 40 bps to 2.3%, our DDM-derived fair value estimate increases from S$2.50 to S$2.61.

Source: OCBC Research - 25 Apr 2019