Frasers Centrepoint Trust - CGS-CIMB Research 2018-10-24: Affected By Higher Operating Expenses In 4QFY18


Frasers Centrepoint Trust - Affected By Higher Operating Expenses In 4QFY18

  • Frasers Centrepoint Trust’s 4QFY18 DPU came in below expectations due to higher operating expenses. Excluding one-off items, 4Q DPU would have been flat y-o-y.
  • Expect better performance in 1QFY19F on higher occupancy.
  • DPU forecasts cut, but ADD maintained given its stable large suburban malls.

FCT FY18 results highlight

  • Frasers Centrepoint Trust (FCT)’s FY18 DPU of S$12.015 cents was below expectations at 97% of our forecast.
  • Although FY18 revenue (+6.5% y-o-y) beat our expectations, net property income (NPI, +5.9% y-o-y) was slightly below our forecast, due to
    1. higher ad-hoc maintenance and marketing expenses for Causeway Point, and
    2. steeper property tax provisions for units post some asset enhancement initiatives (AEI), and
    3. higher ad-hoc maintenance expense and utility consumption for Northpoint City North Wing in 4Q.
  • 4Q y-o-y DPU performance was further affected by
    1. higher interest expense due to increased borrowings for AEI in Northpoint City North Wing, and
    2. lower proportion of management fees paid in units.
  • Excluding the one-off expenses, 4Q DPU was flat y-o-y.

A mixed portfolio performance in FY18

  • The solid topline growth was driven by stronger revenue from Northpoint City North Wing (+2% y-o-y).
  • As for NPI, growth was mainly driven by Northpoint City North Wing (+31.8% y-o-y) and Changi City Point (+35% y-o-y). Causeway Point’s NPI was flat at -0.3% y-o-y. NPI of the smaller malls YewTee Point, Anchorpoint and Bedok Point  rose post AEI while Causeway Point saw flat NPI due to the higher operating expenses.

Occupancy rate to improve going forward

  • Causeway Point, Bedok Point, YewTee Point and Anchorpoint reported lower dip is transitional and expects stronger occupancy rates in 1QFY19.
  • FY18 portfolio rental reversion was at +32% y-o-y. Rental reversion would have been stronger if not for the tenant in Causeway Point.
  • Going forward, Frasers Centrepoint Trust expects Causeway Point and Northpoint City North Wing to continue to feel any impact from the opening of Jewel Changi nearby. YewTee Point is doing relatively well with strong traffic flow while Anchorpoint's performance should be relatively stable.
  • Meanwhile, we expect Bedok Point's performance to boosts its occupancy rate.

Maintain ADD for its stable suburban malls

  • We cut our FY19-20F DPU by 5%, mainly to reflect higher operating expenses and borrowing cost. This reduced our DDM-based target price (to S$2.40). Nonetheless, we keep our ADD call as we continue to like Frasers Centrepoint Trust for its malls.
  • Frasers Centrepoint Trust’s shopper traffic (+5% excluding Northpoint City) and tenants’ sales (+3.6% y-o-y) have been bucking the industry trend.
  • New acquisitions could catalyse the downside risk to our call.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-24
SGX Stock Analyst Report ADD MAINTAIN ADD 2.40 DOWN 2.490