• Frasers Centrepoint Trust's 9MFY9/18 DPU of 9.153 Scts was within expectations, at 74% of FY18F forecast. 
• 3QFY18 boosted by better occupancy and positive rental reversions from larger malls. 
• We expect the larger malls to continue driving growth with higher footfall, occupancy rate and rental reversions. 
• Healthy balance sheet; well positioned for inorganic growth. 
• Maintain ADD with unchanged Target Price of S$2.41. 

3QFY9/18 Results Highlights

Frasers Centrepoint Trust (FCT)’s 3QFY9/18 performance was in line, with gross revenue up 10.9% y-o-y to S$48.3m, thanks to higher portfolio occupancy and positive rental reversions. Distribution income of S$28.3m (DPU: 3.1 Scts) was 2.2% higher y-o-y and represented 100% payout ratio. 

For the 9M, gross revenue rose 8.6% y-o-y, while distribution income was up 3% y-o-y. 9M DPU f 9.153 Scts made up 74% of our FY18F forecast.

Occupancy Remained High

Topline growth was largely due to higher contributions from Northpoint North Wing (NPNW) (+35.9% y-o-y to S$13m), Causeway Point (CP) (+3.8% y-o-y to S$21.8m) and Changi City Point (CCP) (+15.8% y-o-y to S$6.5m). 

While portfolio occupancy was flat q-o-q at 94%, it has improved by 6.9% pts versus a year ago, driven by Causeway Point, Northpoint North Wing and Changi City Point. Northpoint North Wing’s occupancy rate declined as it included Yishun 10 Retail Podium which has only a 50% occupancy rate. Excluding Yishun 10, occupancy rate would have been 95.2%.

Rental Reversion at +5% in 3QFY18

The trust registered a solid +5% rental reversion this quarter on the renewal of 4% of its NLA, mainly driven by better rental rates at YewTee Point (YTP) and Changi City Point. Northpoint North Wing reported a strong 25.8% rental reversion on a small 1.1% of the mall’s NLA as one tenant expanded to the next lot at a high rental rate.

Higher Shopper Traffic at the Larger Malls

Overall portfolio shopper traffic excluding Northpoint North Wing was up 1.2% y-o-y. Causeway Point and Changi City Point’s traffic increased by an average of 5% y-o-y while traffic for Northpoint City increased by nearly double-digits as the trust combined the traffic of North and South Wing. The three smaller malls, namely Bedok Point, YewTee Point  and Anchor Point saw a decline in shopper traffic y-o-y. 

Tenant sales in 3QFY18 were up 3.4% y-o-y, mainly due to Northpoint North Wing and Changi City Point, partially offset by lower tenant sales at the remaining malls. 

Frasers Centrepoint Trust is constructing an underground pedestrian link connecting the basement 1 of Causeway Point and Woods Square to increase footfall. The works will commence at end-Feb 2019 and should be completed by Dec 2019. ROI is estimated to be mid-single digits against cost of S$15m.

Expect Continued Positive Renewals

Frasers Centrepoint Trust has another 6.6% and 27.1% of gross rental income up for renewal in FY18 and FY19, respectively. FY18 renewals are largely in Causeway Point. While Jewel at Changi is slated to open in 1H19, management takes comfort in the fact that Changi City Point’s occupancy rate remained high at 92.6% (+2% pts q-o-q). Gearing is low at 29.3% with64% of its debt on a fixed-rate basis. 

On the acquisition and asset disposal front, Bedok Point, which has a relatively low occupancy rate, could be a disposal candidate. However, management has also indicated that retail assets in Singapore are scarce.

Maintain ADD

We leave our FY18-20F DPU estimates unchanged and maintain our DDM-based Target Price of S$2.41. We continue to like Frasers Centrepoint Trust for its exposure to the more stable non-discretionary retail segment. 

Upside risk could come from new acquisitions while downside risk could come from slower-than-expected rental reversion.

Source: CGS-CIMB Research - 24 Jul 2018