The manager

Creating value through space for today and tomorrow

Letter to Unitholders

Dear Unitholders

We are pleased to present Frasers Centrepoint Trust (FCT)’s Annual Report and Sustainability Report for the financial year ended 30 September 2018 (FY2018).

Twelfth consecutive year of DPU growth, steady returns to Unitholders

FCT has delivered another set of excellent results for FY2018 with new highs attained for distribution per Unit (DPU) and net asset value (NAV) per Unit. The DPU was up 1.0% year-on-year to 12.015 cents, driven by higher revenue and net property income achieved. It is the twelfth consecutive year of DPU growth since FCT’s inception. NAV per Unit was up 3.0% to $2.08 on higher property valuations of FCT’s asset portfolio.

FCT's Unit price also delivered excellent Unitholders’ return performance compared with the broader indices, the FTSE REIT Index and the FTSE Straits Times Index. Total return1 of FCT in the year under review was 13.6%, which outperformed the total return of 6.1% for the FTSE REIT Index and 4.9% for the FTSE Straits Times Index. Over the last 3- and 5-year period, FCT registered total returns of 41.1% and 64.1%, respectively, outperforming both the FTSE REIT and the FTSE Straits Times indices.

This outcome epitomised our focus and effort to deliver stable returns and long-term growth to our Unitholders.

Higher revenue and net property income in FY2018

Gross revenue for FY2018 was up 6.5% to $193.3 million and net property income was up 5.9% to $137.2 million. The revenue growth was driven by the three larger malls, Causeway Point; Northpoint City North Wing; and Changi City Point. These malls account for about 88% of the portfolio’s net property income. Among the three, Northpoint City North Wing delivered the strongest year-on-year growth, with its revenue up by 26.5%2 and net property income up by 35.1%2 on higher average rental and improved occupancy achieved following the completion of its asset enhancement initiative (AEI) works last year. The remaining three smaller malls, YewTee Point; Bedok Point; and Anchorpoint, however, did not fare as well. The revenue achieved for these malls were between 0.1% and 16.0% lower due to lower occupancy and lower average gross rent compared to the same period last year. We expect the occupancy of these smaller properties and its financial performance to improve in the near term as we have secured new leases that will commence in the next few months.

Solid Financial Position

FCT's financial position remains solid with gearing level at 28.6% as at 30 September 2018, which is one of the lowest among the Singapore listed REIT peers. FCT’s all-in average cost of borrowings was 2.6%, which is 30 basis points higher than last year due to the rise in interest rates. FCT currently has about 64% of the borrowings on fixed or hedged-to-fixed interest rates. We remain prudent in our capital management and vigilant of the interest rate movements and market volatilities due to the ongoing geopolitical and trade tensions between the United States and China, as well as the headwinds in the economy in general.

Higher appraised valuation of investment properties drives higher NAV

Total appraised value of FCT’s portfolio of properties as at 30 September 2018 stood at $2,749 million, about 3% higher than the $2,668 million recorded a year ago. All properties except Bedok Point and Yishun 10 retail podium, saw higher appraised values. The surplus on revaluation of the portfolio properties increased FCT's net asset value and net tangible asset to $2.08 per unit from $2.02 last year.

Improved occupancy and positive portfolio rental reversion

The portfolio occupancy as at 30 September 2018 was 94.7%, higher than the 92.0% in the previous year. The improvement was driven mainly by Northpoint City North Wing and Changi City Point. Occupancy at Northpoint City North Wing3 leaped from 81.2% to 99.4% after the completion of the AEI last year. Changi City Point improved its occupancy from 88.5% to 93.8% as the mall was able to attract more new tenants with our tenant-mix repositioning strategy and the commencement of the new Downtown Line MRT train service in October 2017.

For FY2018, a total of 232 leases accounting for about 250,000 square feet or 23.2% of FCT’s total net lettable area (“NLA”) were renewed at an average rental reversion of 3.2%, which was not easy to achieve amidst the considerable challenges facing the retail industry. Causeway Point remained the best performing property in this aspect, it registered 6.4% in average rental reversion in FY2018 for almost 25% of its NLA, while Northpoint City North Wing and Changi City Point achieved 2.8% and 3.8%, respectively.

Higher shopper traffic, driven by the larger malls

The total shopper traffic in FY2018 was 100.1 million, an increase of 5.8% year-on-year. The three larger malls Causeway Point, Northpoint City and Changi City Point saw higher traffic of between 4.1% and 11.5% compared to the same period last year. Northpoint City registered the highest improvement in shopper traffic of 11.5%4, due to the completion of the AEI at the North Wing and the opening of the South Wing (in December 2017) which attracted more shoppers. The three smaller malls saw between flat and 4.7% decline in shopper traffic due partially to the lower occupancy at these malls.

FCT's portfolio of suburban malls continues to benefit from the healthy shopper traffic and leasing demand that support its resilience amidst challenges facing the retail industry. We will continue work on initiatives to keep our malls attractive and relevant to our shoppers, making our malls convenient destinations where our shoppers can enjoy better experience beyond basic buying and dining.

Forging relations with the investment community

The management team of FCAM engages regularly with the investment community using different platforms including conferences; non-deal roadshows; one-on-one meetings and post- results luncheons to apprise them of FCT’s corporate developments and financial performance and to create greater awareness and investors’ interests. We also conduct property tours at our properties for analysts, investors and journalists for them to better understand the operation and dynamics of our business.

In FY2018, FCAM management held meetings with 251 institutional investors (FY2017: 235). The investors generally view FCT favourably because of its established track record in distribution growth, stability, good growth prospects, attractive total return, good corporate governance and transparent management.

ACCOLADES

FCT won five prestigious Investor Relations awards at the IR Magazine Awards – South East Asia 2017 on 5 December 2017. The five awards include: Best Overall Investor Relations; Best Investor Relations Officer (small to mid-cap) – Fung- Leng Chen; Best in Sector (Real Estate); Best in Country (Singapore) and Best Investor Relations by a Senior Management team. FCT was also nominated as finalist in the Best in Financial (including Real Estate) category in The IR Magazine 2018 Global Top 50. The Global Top 50 is a ranking of the world’s best investor relations programs according to surveys of analysts and investors. FCT was the only Singapore listed company among the 50 nominees.

FCT received the Platinum Award of the Best Retail REIT (Singapore) for companies with more than US$1 Billion Market Capitalisation at the Asia Pacific Best of Breeds REITs on 2 August 2018. The award recognises companies and managers with the highest standards and performance in the Asia Pacific REITs sector.

Growth outlook

The Singapore Government has forecast Singapore’s economy to grow by 2.5 to 3.5% in 2018 and has cautioned about risk on its economy growth projection for 2019 due to the ramifications from trade tension between the United States and China. We remain watchful of the risks from these external events that could indirectly impact our business, including our sources of funding. We review our risk management policies regularly and take appropriate actions where necessary.

The Singapore Government has forecast Singapore’s economy to grow by 2.5 to 3.5% in 2018 and has cautioned about risk on its economy growth projection for 2019 due to the ramifications from trade tension between the United States and China. We remain watchful of the risks from these external events that could indirectly impact our business, including our sources of funding. We review our risk management policies regularly and take appropriate actions where necessary.

ACKNOWLEDGEMENTS

Mr Soh Kim Soon retired from the Board on 31 December 2017 as non-executive and independent director, as a member of the Audit Committee and as the Chairman of the Nominating and Remuneration Committee. Mr Soh has served on the Board since the inception of FCT in 2006, the Board expresses its sincere appreciation for his service and contributions.

Dr Cheong Choong Kong, who joined the Board as Lead Independent Director in 2016, has been appointed Chairman of the Board on 1 March 2018. He succeeded Mr Philip Eng, who has served as Chairman of the Board for the last 9 years. We are grateful to Mr Eng’s invaluable experience and stewardship as Chairman and we are happy that Mr Eng has agreed to continue to serve as non-executive and non- independent director and as member of the Audit Committee.

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

Dr Cheong Choong Kong
Chairman

Dr Chew Tuan Chiong
Chief Executive Officer

21 December 2018

  1. Total return comprises unit price increase and return from re-invested DPU
  2. Excluding Yishun 10 retail podium
  3. Excluding Yishun 10 retail podium
  4. The shopper traffic for Northpoint City includes both North Wing and South Wing as the two wings are integrated. The year-on-year comparison for Northpoint City is based on the restated shopper traffic of 37.5 million for FY2017 and 41.8 million for FY2018.

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