Wong and Tan remain “firmly positive” on FCT as the REIT’s 1HFY2024 DPU stood ahead of their estimates and with its forward yields of 5.4% - 5.6% “on offer”. They add that the REIT continues to “pull the right levers” after its recent acquisition of Nex, which positioned it as the “King of suburban retail malls”.
The analysts also like FCT’s attractive operational metrics with occupancy reaching “unseen levels” of 99.9% and overall reversionary rents exceeding expectations at 7.5%, along with its record-low occupancy cost of 15.6% in the FY2023, which supports 5% or more rental reversions in FY2024.
“FCT’s portfolio continues to outperform its peers on several fronts, with tenant sales [around] 15% above [its] pre-Covid levels, unscathed by either the return-to-office trend or broader reopening. With an occupancy cost of 15.6% for FY2023, below the 16.6% - 17.0% levels seen pre-Covid, we see scope for further rental upside, backed by healthy tenant sales, with more room for reversionary rents to rise,” they write.
In addition, Wong and Tan note that FCT’s track record of portfolio rejuvenation remains “best-in-class” with a divestment record at exit cap rates of 4.3% and below.
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“We believe FCT has the expertise to enhance Nex mall’s profitability by unlocking gross floor area (GFA) and organic growth to bring about a [less than] 0.7% accretion to DPU,” add Wong and Tan.
Through its recent securing of stakes in Nex mall and Waterway Point (WWP), the analysts believe that this would provide FCT with a $1.7 billion growth runway to expand its asset under management (AUM). At the same time, the analysts believe FCT will target its sponsor’s right of first refusal (ROFR) asset, Northpoint City South Wing, which is expected to add another $1.2 billion in the medium term.
Meanwhile, Maybank’s Guha notes FCT’s “steady performance”, highlighting its high single-digit rental reversion and the near-full occupancy rate of its retail portfolio.
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Coupled with lower cost of funding as FCT’s higher-cost debt was paid down with divestment proceeds, Guha has upped his estimates after factoring in FCT’s acquisition of Nex.
“We factor in lower borrowing expense, contribution from the acquisition of 24.5% of Nex, an enlarged unit base and a higher proportion of fees in units. All in all, this results in [an estimated] 2% higher distribution for FY2024,” he writes.
“FCT continues to stand as our retail top pick, supported by a flourishing retail landscape in Singapore, as trading metrics continue to outperform our estimates,” state DBS’s Wong and Tan.
As at 4.52pm, shares in FCT are trading at 3 cents lower or down 1.38% at $2.14.
