Analysts are largely positive on Frasers Centrepoint Trust (FCT) following the 1QFY2025 business update for the three months ended Dec 31, 2024, which saw an occupancy rate of 99.5% for its nine malls and one office block.
PhillipCapital and RHB Bank Singapore analysts have upgraded their calls to “buy” with an unchanged target price of $2.44 and $2.35 respectively. Citi Research, Maybank Singapore and CGS International (CGSI) have also maintained and kept their “buy” and “add” calls on the REIT, with an unchanged target price of $2.11, $2.50 and $2.68 respectively.
As a recap, FCT’s retail portfolio occupancy remained high at 99.5%, with only three malls reporting lower occupancies — a slight dip in occupancy due to Tiong Bahru Plaza’s small scale asset enhancement initiative (AEI), Hougang mall in preparation for its upcoming AEI, and White Sands’ single vacancy on an upper floor.
With such high occupancy, FCT is well positioned to negotiate for higher rents, says PhillipCapital’s analyst Darren Chan.
The REIT’s tenant sales for the reporting period and shopper traffic rose 2.5% and 2.7% y-o-y, respectively, so Chan expects retail spending and tenant sales to be supported by population growth in catchment areas, rising median household incomes, and government initiatives such as the CDC vouchers and the progressive wage model for lower-wage workers.
He notes that FCT’s average cost of debt improved by 0.1% q-o-q to 4%, declining from the peak of 4.3% in 1QFY2024. 65.5% of debt is hedged to a fixed rate, and the adjusted interest coverage ratio (ICR) is 3.33 times.
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With Hougang Mall securing a pre-commitment rate of about 50% before AEI commences, FCT targets a 7% return on investment (ROI) on the project’s $51 million capex.
Chan says that inorganic growth opportunities for the REIT include the acquisition of the sponsor’s stake in Northpoint City South Wing and the remaining 50% stake in NEX.
“With limited incoming supply averaging about 0.3 million sq ft per year over the next three years, representing less than 1% of current stock, the potential for strong rental reversions remains high,” he ends.
Likewise, Vijay Natarajan from RHB likes FCT due to better-than-expected overall tenant sales, and the gradual decline in interest costs of 10 basis points (bps) q-o-q. Like Chan, Natarajan notes the AEIs that Hougang Mall and NEX is about to undertake.
He highlights that market concerns over FCT’s Causeway Point are slightly overblown.
Ahead of the upcoming Singapore-Johor Bahru Rapid Transit System or RTS Link, he thinks that the potential retail sales leakages can be offset by a significant planned increase in catchment population in the area. This includes Woodland’s rising prominence as a regional centre which results in more commercial activities in his view.
“FCT’s strong and long track record of operating suburban malls and its sizeable mall network – with huge tenant pool and loyal shopper base – also allows it to effectively reposition some of the malls’ generic trade segments that could be more negatively impacted by cheaper cost alternatives available across the Causeway,” says Natarajan.
The analyst makes no earnings changes with FY2025 distribution per unit (DPU) forecasted to return to growth mode.
Maybank’s analyst Krishna Guha similarly cites strong portfolio occupancy, prudent capital management and “AEIs tracking well” as key reasons to keep his “buy” call on FCT.
However, on the back of limited financial disclosures, Guha leaves his estimates and dividend discount model (DDM)-based target price unchanged.
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“New home growth, growing median household income, supportive government policy measures and proactive asset management should help FCT deliver a resilient performance and maintain a stable distribution profile,” he ends.
Meanwhile, Brandon Lee from Citi notes that FCT has slightly underperformed S-REITs (+1%) y-t-d, but he maintains his “buy” rating given its defensive income stream and proven track record of delivering well on AEIs.
His target price for FCT of $2.50 is based on an average of DDM and revalued net asset value (RNAV) valuations. He makes the following assumptions in our DDM valuation; risk-free rate of 3.5%; overall cost of equity of 8.0%; and terminal growth of 3.0%.
He has not factored in any potential earnings accretion or dilution from any unannounced acquisitions.
Lock Mun Yee from CGSI similarly keeps her “add” call for FCT, and keeps her FY2025-FY2027 DPU estimates unchanged and maintain our DDM-based TP at $2.68.
She remains positive on the demand for space at FCT’s suburban malls and active asset management strategy, noting stronger-than-forecast rental reversions and accretive new acquisitions.
However, she notes downside risks of slowdown in consumer spending, which may lower gross turnover rents, and weakening tenant sentiment/leasing, impacting FCT’s ability to command positive reversions.
Finally, Xavier Lee from Morningstar retains his fair value estimate of $2.42. He says that he likes that the enhancement has delivered a return on investment of about 20%, and appreciates management’s efforts in actively seeking ways to improve its assets and unlock value for unitholders.
As at 1.32pm, units in Frasers Centrepoint Trust are trading 1 cent higher or 0.472% up at $2.13.
