Frasers Centrepoint Trust
Price target:
PhillipCapital “buy” $2.64
Occupancy improved but higher cost of equity seen
PhillipCapital analyst Natalie Ong has reiterated her “buy” call on Frasers Centrepoint Trust (FCT) but with a lowered target price of $2.64, from $2.83. This is in anticipation of higher cost of equity estimated at 6.48%, up from 6.38% previously.
For 1QFY2022 ended December last year, FCT’s occupancy was up 2.1% y-o-y, with six out of nine malls achieving occupancies between 97% to 100%. The three laggards are Century Square, Changi City Point and
White Sands, which recorded occupancies of 91.1%, 92.6% and 92.5% respectively.
Changi City Point, which is located near Changi Business Park and Singapore Expo, saw weaker demand as it was impacted by lower footfall.
Meanwhile, occupancy at Central Plaza
fell from 91.8% to 71.7% following the exit of an anchor tenant. Ong says anchor tenants are usually offered more favourable rates and FCT could see positive reversions should the space be subdivided out and leased to multiple tenants.
“FCT is also exploring leasing the space out to quasi-retail tenants such as clinics and services as Central Plaza is connected to Tiong Bahru Plaza via a link way on the second floor. Either strategy should yield higher rents compared to the rents charged to the anchor tenant. However, the multi-tenant lease strategy may result in a longer void period required to lease all the available floors,” she adds.
Ong also highlights that FCT has a healthy leasing momentum with 14.4% of gross rental income de-risked. The REIT’s lease expiries by gross rental income for FY2022 reduced from 37.2% to 22.8%.
As at end January, half or remaining FY2022 expiries at around 11% have been committed or are under advanced negotiation. “While no reversion number was disclosed, we understand that the reversions have improved from FY2021’s –0.6%,” she adds.
FCT also benefited from the increase in dine-in and group size and festivities, with tenant sales in November and December reaching 101% and 106% of pre-pandemic levels.
Says Ong: “While tenant sales have recovered to pre-pandemic levels, recovery varies among and within trade sectors. For instance, kiosk and easy-takeaway F&B tenants located along the walkways to the MRT stations may see a pick-up in sales due to incidental spending from more employees returning to the office. Fashion and other sit-down F&B tenants may benefit from the larger group sizes and resumption of events.”