• 9MFY19 DPU of 9.157 Scts was below expectations at 70% of our full-year forecast due to higher-than-expected finance costs.
• Nevertheless, Frasers Centrepoint Trust (SGX:J69U) continued to buck the weak retail trend, with better rental reversion, occupancy rates, shopper traffic and tenant sales.
• We revise our FY19-21F DPU forecasts by -3.7% to +0.4%. Maintain ADD.

FCT's 9MFY19 Results Highlight

• FRASERS CENTREPOINT TRUST (SGX:J69U)’s 9MFY19 revenue increased to S$148.1m (+2.3% y-o-y) mainly due to improvements in revenue from Northpoint City North Wing and Changi City Point. NPI increased at a slower rate to S$106.4m (+2% y-o-y) due to higher property tax expenses from Northpoint North Wing.
• Frasers Centrepoint Trust's 9MFY19 DPU increased 0.04% y-o-y to 9.157 Scts and formed 70% of our full-year forecast.

Stronger Retail Metrics Y-o-y

• Rental reversion continued its positive trend at +3.1% in 3QFY19. Of all the malls, only YewTee Point reported a decline in rental reversion (-2.5%). Causeway Point, Bedok Point and Anchorpoint registered 4.1%, 8.1% and 3.7% rental reversions respectively, while Northpoint City North Wing and Changi City Point’s rental reversions were flattish y-o-y.
• Shopper a resilient suburban mall player.
• Portfolio occupancy remained high at 96.8% (+0.8% pts y-o-y). Except for Anchor Point which reported flat occupancy rate of 95%, all other malls experienced higher occupancy rate on a q-o-q basis.

Looking in FY20

• Frasers Centrepoint Trust has 5 REIT has 34.3% of the total NLA up for renewal. The bulk of the expiries Causeway Point and Northpoint City North Wing.
• Given the high footfall of these malls, we believe the expiring leases would be renewed at favourable terms to Frasers Centrepoint Trust. This is especially so for Causeway Point as the construction of an underground pedestrian link between B1 of the mall and Woods Square (an integrated office development with retail and F&B) should help to increase shopper traffic.

Maintain ADD

• We revise our dividend declared from PGIM. We maintain our ADD call with a slightly higher DDM-based Target Price of S$2.79.
• The acquisition of malls, although weaker-than-expected rental reversions be a key downside risk.
• The management is hopeful that Frasers Centrepoint Trust will be included into the NAREIT Index during the Sep review.

Source: CGS-CIMB Research - 23 Jul 2019