• 1Q19 NPI and DPU in line with our forecast. Improved NPI margins for Causeway Point and Changi City Point (CCP), with the latter performing exceptionally well.
• Secured refinancing and prepayment of certain 2019 borrowings and 2020 debt.
• Waning rental reversions for CCP and Northpoint North Wing. Flat same-store tenant sales growth during the Sep-Nov 2018 period, declining in excess of -1% YoY.
• Maintain Neutral with unchanged TP of S$2.21.

The Positives

+ Improved NPI margins for CWP and CCP. Causeway Point (CWP) and Changi City Point (CCP) recorded higher NPI margins YoY, the latter of which performed exceptionally well (+12.7% YoY increase in revenue in comparison to the +2.7% YoY increase in expenses) due to the progressive tenant reconfiguration of the addition of more outlet tenants, as well as the heightened positioning of the mall on the back of the enhanced connectivity from the opening of Downtown Line 3 (one year since its opening in Oct 2017).

+ Secured refinancing and prepayment of certain 2019 borrowings and 2020 debt. FCT had secured commitments for the refinancing and prepayment of S$190mn borrowings – these are for the S$60mn MTN (due April 2019), S$60mn of unsecured bank borrowings (due June 2019), and the pre-payment of $70mn of secured bank borrowing (due Dec 2019 (FY2020)). It is intended to term out the remaining S$102mn of unsecured bank borrowings expiring in FY2019, in due course.

The Negatives

– Waning rental reversions for CCP and NPNW. Just over half of CCP’s and close to a third of NPNW’s expiring leases (by GRI) for FY2019 had been renewed in this first quarter alone, albeit on lower reversions (QoQ basis) of -1.3% (4Q18: 0.5%) and 1.9% (4Q18: 2.4%), respectively.

– Flat same-store tenant sales growth. Tenant sales (excl. NPNW) in the Sep-Nov 2018 period declined in excess of -1% YoY. On the same note, occupancy cost inched up to 16.6% for FY18 – this figure has crept up steadily over the past three years from 15.3% in FY15, in part due to NPNW’s AEI.

Outlook

The Manager expressed confidence that healthy reversions will continue to be clocked for CCP, despite the opening of Changi Jewel (Jewel) in March 2019, which is one train stop away. However the Manager acknowledged that there could a temporary adverse impact on sales and footfall for CCP, but also took note that the positioning of Jewel (said to comprise a higher proportion of SMEs than any of the malls in FCT’s portfolio) would be different than that of CCP.

Construction for the $15mn AEI (underground pedestrian link) at CWP will take place from end-Feb to Dec 2019, and some downtime in terms of temporal loss in occupancy and footfall is expected during this time period. However the addition of this underpass will bring about improved connectivity and expand the catchment area for CWP in the long run.

Separately, it was announced that the CEO of the Manager of FCT, Dr. Chew Tuan Chiong, will step down by end-2019 after a decade with the Group, and that his successor will be announced in due course.

Maintain NEUTRAL with unchanged TP of S$2.21

Our target price translates to a FY19e yield of 5.3% and a P/NAV of 1.09.