SINGAPORE (Oct 25): Frasers Centrepoint Trust (FCT) on Thursday reported a DPU of 2.862 cents for 4Q18, 3.6% lower compared to the DPU of 2.970 cents in 4Q17, bringing FY18 to a new high of 12.015 cents, 1.0% higher than 11.90 cents in FY17.
Gross revenue for the quarter was 0.5% higher at $48.5 million, compared to $46.2 million last year. The growth was led by Northpoint City North Wing (NCNW), which saw higher average rental and improved occupancy following the completion of the asset enhancement initiative (AEI) works last year.
Meanwhile, Causeway Point and Changi City Point (CCP), also achieved higher revenue for the year, with 2.3% and 5.0% y-o-y growth revenue, respectively.
Hence, net property income (NPI) for 4Q18 to $32.9 million, 4.9% lower than $34.6 million a year ago.
See: Frasers Centrepoint Trust posts 3.6% 4Q DPU of 2.862 cents
Following the results announcement, Maybank KimEng is reiterating its “buy” recommendation on FCT with a target price of $2.55. FCT is also the research house’s preferred retail play.
In 4Q18, the trust’s rental reversions slowed to 0.2% compared to 5% in the previous quarter, bringing overall FY18 rental reversions to 3.2%, the lowest in 10 years. The management said that this was due to the strategic repositioning of its tenant mix at Causeway Point.
Bedok Point saw weak rental reversions at -23.3%. In a Thursday report, analyst Chua Su Tye says, “Its occupancy should improve to 85% in 1Q19 as a new restaurant opens; management shared that rents have likely bottomed out.”
Meanwhile, vacancy in Anchorpoint has been backfilled by a new F&B tenant set to open in 1Q19
“We see stronger rental growth upside at CWP from underlying demand,” says Chua.
FCT is among the low-geared SREITs at 28.6%, with an estimated $500 million debt headroom at 40% gearing. The analyst says that this should support the trust’s acquisitions.
Similarly, DBS Group Research is maintaining its “buy” call on FCT with a target price of $2.35.
FCT’s record FY18 DPU marks 12 consecutive years of DPU growth.
In a Thursday report, analysts Carmen Tay and Derek Tan say, “However, after years of strong rent reversions at its anchor malls, we believe that stability will likely take centre stage for now as the manager prepares its portfolio for the future.”
The analysts reckon that FCT’s multi-year DPU growth path is still set to continue, but at a more moderate pace, as higher interest costs kick in.
DBS continues to like FCT as all of its properties are suburban malls, which have proven to be resilient across market cycles.
“While our near-term DPU growth expectations are adjusted downwards from 3-4% to 1-3% to account for higher interest rates, higher proportion of management fees paid in cash, and a more balanced rent outlook, we believe the merits of its resilient portfolio and low gearing should continue to draw interest in the stock,” say the analysts.
RHB Research is maintaining its “neutral” call on FCT with a target price of $2.19.
In a Thursday report, analyst Vijay Natarajan says, “Looking ahead, of its three key large malls, we only see room for positive rental reversions from Causeway Point (post-AEI), as it has already optimised rental rates in NCNW and CCP. We trim our rental growth assumptions to 1-3% for FY19, from mid-single digit levels.”
Meanwhile, occupancy rate improvements were seen in all of the trust’s malls, except for Causeway Point which dipped 1.5ppt on translational vacancy. The analyst expects the overall occupancy for FY19 to remain stable at 95%.
FCT also intends to build an underground pedestrian link (UPL) in B1 of Causeway Point and Woods Square. Natarajan views this move as positive and necessary.
“Overall, it expects to incur capex of $15 million, and the returns should come in the form of a slight NLA increase (in the second level of the mall) and higher shopper traffic – which should translate to better rental rates,” he adds.
As at 11.55am, units in FCT are trading 2 cents lower at $2.21 or 1.1 times FY19 book with a dividend yield of 5.6%.
