The analysts say that FCT’s full year gross revenue of $356.93 million up 4.6% y-o-y was in line with their estimate of $358.5 million.
Net property income (NPI) for the full year was $258.60 million, up 4.9% y-o-y and distributable income was at $208.19 million, up 1.7% y-o-y. “Full year NPI of approximately 72% was comparable on a y-o-y basis, factoring in higher marketing expenses and higher property tax and maintenance expenses this year,” say Wong and Tan.
Correspondingly, FCT’s FY2022 distribution per unit (DPU) of 12.227 cents up 1.2% y-o-y was below, post income retention of $1.7 million in 2HFY2022.
Additionally, Wong and Tan observe that FCT continues to report strong tenant sales, where on a full-year basis, portfolio tenant sales rose 11.3% y-o-y, while shopper traffic rose 12.4% y-o-y, outperforming peers on several fronts.
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For 9MFY2022, tenant sales averaged at about 110% of pre-Covid-19 levels, with shopper traffic currently hovering at approximately 80% of pre-Covid-19 levels.
Portfolio committed occupancy rose 0.40 percentage points (ppt) q-o-q to 97.5% as well, with a tenant retention rate of 82%.
“With occupancy costs of 16.2% for FY2022 below pre-Covid-19 levels of 16.6%-17.0%, we see further rental upside to be unlocked in the coming years, with more room for reversionary rents to rise,” says the analysts.
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At the same time, FCT’s ancillary income, which typically contributes approximately 3% to the topline revenue, was below pre-Covid-19 levels. “Only three to four months’ worth of atrium sales income was shown in FY2022 financial numbers, and we expect to see a full year contribution of atrium rental income in FY2023,” Wong and Tan add.
However, the analysts have lowered their target price to $2.60 from $2.90 previously as they roll forward their valuations into FY2023 while pricing in higher interest rate assumptions in FY2023 and FY2024.
“Our discounted cash flow valuation factors in a 3.5% risk free rate, 0.70 beta, 6.2% weighted average cost of capital (WACC), and 2.5% terminal growth to derive a new target price of S$2.60. We have not factored in acquisition assumptions in our model,” they write.
CGS-CIMB Research analysts Lock Mun Yee and Natalie Ong have kept an “add” rating on FCT with a lowered target price of $2.48 from $2.75 due to higher risk-free/cost of equity (COE) assumptions.
At this stage, FCT’s continues to recover steadily, where FY2022 reversions came in at 1.5% higher, the analysts point out.
Five out of FCT’s nine malls currently display an occupancy of above 99%. Lock and Ong note that three of its assets continue to lag in recovery however, Changi City Point continues to be impacted by reduced footfall in the Expo/Changi business park area, while backfilling is in progress at Century Square and Central Plaza, following the exit of mini-anchor tenants.
“Going forward, we expect NPI margins to remain healthy albeit marginally lower y-o-y as built-in rental escalations and full-year operations of atrium space, which typically contributes approximately 3% to revenue, should mitigate higher utility costs,” Ong and Lock write.
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The analysts also note that all-in cost of debt increased marginally from 2.2% in FY2021 to 2.5% in FY2022, while interest rate hedge improved from 56% to 71%.
“Leverage dipped q-o-q from 33.9% to 33.0% but is expected to increase to c.35% post-acquisition of the additional 10% stake in Waterway Point in mid-1QFY2023,” they add.
Management articulated its disciplined approach towards portfolio reconstitution in light of the volatile macroeconomic environment and will evaluate acquisitions and divestments on a case-by-case basis.
“We introduce our FY2025 and tweak our FY2023 and FY2024 DPU by -2.1% and 1.3% respectively as we pencil in the acquisition of the additional 10% stake in Waterway Point, assuming a loan-to-value ratio (LTV) of 100% and mid-1QFY2023 completion for the acquisition, as well as peaking interest cost and utility expenses in FY2023,” say Lock and Ong.
As at 12.36pm, units in FCT are trading at 2 cents up or 0.96% higher at $2.10 at an FY2023 P/B ratio of 0.89x and dividend yield of 6.05% according to CGS-CIMB’s estimates.
