THE MANAGER
Letter to Unitholders

Philip Eng and Dr Chew Tuan Chiong

Dear Unitholders,

We are pleased to present Frasers Centrepoint Trust (FCT)’s Annual Report and Sustainability Report for the financial year ended 30 September 2017 (FY2017).

EXECELLENT SET OF FY2017 RESULTS

FCT has delivered another excellent set of results for FY2017, with achievement of historical highs for the distribution per Unit (DPU) and net asset value (NAV) per Unit. DPU for FY2017 grew 1.2% year-on-year to 11.90 cents, it is FCT’s eleventh consecutive year of DPU growth since its listing in 2006. NAV per Unit increased 4.7% year-on-year to $2.02 per Unit on the back of gains from revaluation of portfolio properties. Over the last 3- and 5-year period, FCT registered total returns of 32.9% and 55.2%, respectively, and outperformed both the FTSE Straits Times Index and the FTSE REIT Index. This gratifying outcome is a result of our clear focus to deliver stable returns and long term growth to unitholders.

Revenue for FY2017 was $181.6 million, 1.2% year-on-year lower due mainly to the planned vacancies in conjunction with the asset enhancement initiative (AEI) works at Northpoint City North Wing (Northpoint NW). Lower property expenses helped to keep the net property income (NPI) relatively unchanged at $129.6 million. Causeway Point, our largest property, did most of the heavy lifting in NPI contribution. Causeway Point’s NPI grew 5.7% and accounted for 50.6% of the total portfolio NPI. Changi City Point also saw a good 3.7% increase in its NPI on improved rental rates from lease renewals and higher average occupancy.
NPI from Northpoint NW was 14.8%1 down year-on-year due to the AEI which started in March 2016. With the completion of the AEI, Northpoint NW’s performance will continue to pick up progressively, as occupancy improves and rental income recovers.  unitholders.

STRONG FINANCIAL POSITION

FCT’s financial position remains strong with gearing level at 29.0% as at 30 September 2017, one of the lowest among its S-REIT peers listed on the SGX-ST. The all-in average cost of borrowings was 2.3% and the weighted average debt maturity was 2.3 years. We have currently about 55% of the borrowings on fixed or hedged-to-fixed interest rates. We will continue to remain prudent in our capital management and monitor the interest rate environment with vigilance.

HIGHER VALUATIONS LIFTED NAV TO $2.02 PER UNIT

Total appraised value of FCT’s portfolio of properties as at 30 September 2017 stood at $2,668.1 million, some $159 million higher than the $2,509.0 million recorded a year ago. The increase was due to the higher appraised values of several of FCT properties, particularly Causeway Point and Northpoint NW, as well as the addition of Yishun 10 retail podium acquired in November 2016. The higher appraised portfolio value lifted the NAV of FCT to $2.02 per unit, from $1.93 per unit a year ago.

IMPROVED PORTFOLIO OCCUPANCY, POSITIVE RENTAL REVERSIONS

The portfolio occupancy as at 30 September 2017 was 92.0%, higher than the 89.4% a year ago. The increase came mainly from Northpoint NW, which improved its occupancy to 81.2%2 from 70.9% as the AEI moved towards completion; and from Changi City Point, which saw its occupancy increased to 88.5% from 81.1% with new tenants commencing their leases during the year.

During the year, a total of 186 leases accounting for nearly 300,000 square feet or 27.7% of FCT’s total net lettable area (“NLA”) were renewed at an average rental reversion of +5.1%, a commendable performance given the current slow retail environment. Causeway Point, which accounted about 53% of the total NLA renewed, achieved a healthy positive rental reversion of 7.7%. Other malls including Northpoint NW, Changi City Point and YewTee Point registered positive rental reversions, while Anchorpoint and Bedok Point registered negative rental reversions of 0.9% and 21.3%, respectively.

SHOPPER TRAFFIC AND OCCUPANCY COST

The portfolio shopper traffic in FY2017 was 98.4 million, this is about 3.6 million or 3.5% lower year-on-year. The lower traffic was traced mainly to the 3.9 million or 8.6% drop in shopper traffic at Northpoint NW due to the AEI works. Excluding Northpoint NW, the aggregate shopper traffic at the other properties would have been 0.5% higher year-on-year. Overall portfolio tenants’ sales in FY2017 were 5.7% lower year-on-year. All malls saw a decline in sales volume. Northpoint NW in particular, registered 15.2% lower tenants’ sales year-on-year caused mainly by the AEI works. Excluding Northpoint NW, the average decline in tenants’ sales for the other five malls was about 3.4%. The portfolio occupancy cost, which is the ratio of gross rent to the tenants’ sales, was 16.6% in FY2017. This is higher compared with 15.7% in FY2016 and 15.3% in FY2015. We monitor the occupancy cost of each mall carefully and will adjust our leasing and tenant mix strategies to maintain sustainable growth for our portfolio and to keep our malls competitive.

REJUVENATED NORTHPOIINT CITY NORTH WING

Eighteen months since the start in March 2016, the AEI at Northpoint NW is successfully completed, on schedule and within budget. As usual, this was accomplished through the dedication and diligence of all the Frasers team and partners involved in the AEI. AEIs form part of our overall strategy to periodically upgrade our malls to provide sustainable income growth for FCT. This most recent endeavour, budgeted at $60 million, comprised upgrading of the amenities, re-configuration of mall layout as well as to integrate with the Northpoint City South Wing3 to provide shoppers with seamless connectivity between the two retail wings, the Yishun MRT station and the bus interchange. Concurrently we have also introduced many exciting new food and beverage (F&B) brands, restaurants and retailers.

We project the average rental per square foot of NLA of Northpoint NW to improve by about 9% after stabilisation post-AEI. Although the increase in rental income for the property will be partially off set by a reduction of NLA of about 7.5%, the AEI is expected to deliver positive return on investment and more importantly, to bring about long-term benefits for FCT and its unitholders.

FOCUS ON CONTINUOUS IMPROVEMENT TO DRIVE FURTHER GROWTH

Sustainability is an important aspect of FCT’s long-term business strategy. Our Sustainability Report, which forms part of this Annual Report, is a testament of our commitment to sustainability in our business activities, our sector and the local communities. Our approach and strategy are aligned with the Frasers Centrepoint
Group and we are committed to supporting the sustainability eff orts and initiatives spearheaded by the Group.

ACCOLADES

FCT received two awards in FY2017, namely the Best Sustainable Growth REIT in Asia at the Fortune Times REITs Pinnacle Awards and the Gold Award for the Best Retail REIT (Singapore) at the Asia Pacific Best of the Breeds REITs Awards. These awards are in recognition of FCT’s excellence in its operational performance, capital management, risk management and corporate governance, and fulfilling investor expectations.

EXPANDING OUTREACH TO INVESTORS

We devote appreciable amount of management time and resources to engage the investment community globally. During the year, our management met with 235 institutional investors (FY2016: 289). This is achieved through one-on-one meetings, non-deal road shows (NDRs), post-results
luncheon and participation in investor conferences, both locally and overseas. The investors generally view FCT favourably because of its established track record in DPU, steady growth prospects, attractive total return, good corporate governance and transparent management. We will expand
our outreach to new institutional investors and work towards growing and diversifying our unitholder base.

We continue to enjoy a strong base of research coverage. There are currently 17 equity research houses covering FCT, of which 12 of them hold positive views on the stock.

ACKNOWLEDGEMENTS

Mr Bobby Chin stepped down from the Board on 31 July 2017 as non-executive and independent director as part of the board renewal process. He has also relinquished his roles as Chairman of the Audit Committee and a member of the Nominating and Remuneration Committee. To Mr Chin who has served since the
inception of FCT in 2006, the Board expresses its deep appreciation for his invaluable contributions.

We welcome Mr Simon Ho Chee Hwee and Mr Ho Chai Seng who joined the board this year as non-executive and independent directors. Both have been appointed as members of the Nominating and Remuneration Committee. Mr Simon Ho is also appointed the Chairman of the Audit Committee on 31 Jul 2017, succeeding
Mr Bobby Chin.

In closing, we thank our fellow board members for their stewardship in guiding FCT forward. We would also like to thank the management and staff for their dedication and relentless hard work. Finally, we express our gratitude to our unitholders, business partners, tenants and shoppers for their continued support.

 

Signatures in Letter to Unitholders 

22 December 2017

1 Excludes contribution from Yishun 10 retail podium as property was acquired in November 2016.

2 Excluding Yishun 10 retail podium.

3 Northpoint City South Wing is 100%-owned by FCT’s sponsor, Frasers Centrepoint Limited.