• 3QFY19 DPU -1.7% YoY
• Positive rental reversions of 3.1%
• FV raised to S$2.69

3QFY19 Results Within Our Expectations

Frasers Centrepoint Trust’s (FCT) 3QFY19 results came in within our expectations. Gross revenue rose 1.6% YoY to S$49.1m. However, NPI fell 1.1% to S$34.6m as a result of higher property tax at Northpoint City North Wing and the absence of property tax refunds which were present in 3QFY18. DPU slipped 1.7% YoY to 3.00 S cents as management chose to retain S$1.9m of taxable income available for distribution to unitholders (3QFY18: nil).

3QFY19 saw the maiden contribution from PGIM Real Estate AsiaRetail Fund Limited (PGIM ARF), with a distribution of S$5.0m to FCT. Approximately 60% of this was due to a one-off declaration of distribution from the divestment gain of Liang Court mall. For 9MFY19, FCT’s gross revenue and NPI rose 2.3% and 2.0% to S$148.1m and S$106.4m, respectively. DPU of 9.157 S cents was flat as compared to 9MFY18 and accounted for 74.8% of our FY19 forecast.

Operating Metrics Largely Healthy

FCT’s portfolio occupancy improved by 0.8 ppt QoQ to 96.8%, with only Changi City Point recording a slight dip. Bedok Point saw a significant jump from 88.7% (as at 31 Mar 2019) to 95.0%. Rental reversions were also firm in 3QFY19, growing 3.1% for 6.8% of the portfolio’s NLA. This was led by Bedok Point (+8.1%) and Causeway Point (+4.1%), while YewTee Point was the only mall which saw a negative rental reversion (-2.5%). Shopper traffic for FCT’s portfolio grew 6.1% YoY, while tenants’ sales on a psf basis rose 2.9% YoY for the 3-month period from Mar to May 2019.

Valuations no longer attractive as at 23 Jul close

As at 30 Jun 2019, FCT’s gearing ratio was only 23.5%. However, this was due to an equity fund raising exercise which raised gross proceeds of S$437.4m in May/Jun. Following the completion of the acquisition of a 33.3% interest in Waterway Point on 11 Jul 2019, FCT’s gearing ratio is expected to increase to ~32% (~34% on a look-through basis if we include PGIM ARF).

After adjustments and lowering our risk-free rate assumption from 2.3% to 2.0%, our fair value increases from S$2.61 to S$2.69. We believe valuations are no longer attractive as at 23 Jul close, as FCT’s blended forward yield (based on Bloomberg consensus) is currently 4.9%, or 2.6 standard deviations below its 8-year mean.

Source: OCBC Research - 24 Jul 2019