Frasers Centrepoint Trust
Analysts like FCT’s positive 1H metrics
Analysts are upbeat over Frasers Centrepoint Trust’s (FCT) results for 1HFY2024 ended March 31 when the trust reported a distribution per unit (DPU) of 6.022 cents, 1.8% lower y-o-y.
Except RHB Bank Singapore which has kept its “neutral” call, the rest of the analysts have kept their positive calls.
To RHB’s Vijay Natarajan, FCT fell short of his expectations with its DPU “slightly below” his forecasts, although he sees the REIT to be “on the right track”.
In his report dated April 25, Natarajan likes that the REIT’s metrics remained robust in the 1QFY2024 with “very high” occupancy rates and high single-digit rent reversions, which are similar to its peers. The acquisition of an additional stake in Nex is also a plus. Contributions from the acquisition are expected to kick in fully in 3QFY2024.
However, the analyst also sees that FCT is likely to experience persistent finance cost pressures due to its FCT’s below-average hedge position compared to its peers.
Natarajan, who has kept his target price unchanged at $2.35, has tweaked his DPU estimates for FY2024 to FY2026 by 0% to 1%. The adjustment comes after making changes to FCT’s net property income (NPI) margins on its joint venture (JV) contributions.
CGS International’s Natalie Ong and Lock Mun Yee have kept their “add” call and target price unchanged at $2.54. However, they have increased their FY2024 DPU estimate by 1.7%. The estimated change is due to the lower revenue and NPI assumptions due to the asset enhancement initiative (AEI) at Tampines 1 and offset by the higher percentage of management fees that were paid out in units.
The analysts also made minor adjustments to their revenue estimates for FY2025 to FY2026, which were largely offset by marginally higher NPI margin and lower cost of debt assumptions. As such, no changes were made to their FY2025 and FY2026 DPU estimates.
“We remain positive on the demand for space at FCT’s suburban malls and FCT’s active asset management strategy,” write Ong and Lock in their April 26 report.
To them, FCT’s 1HFY2024 DPU stood in line at 51% of their full-year estimates. They also liked FCT’s latest set of results for its strong positive retail reversions, higher tenant sales, healthy balance sheet and expected stable cost of debt.
DBS Group Research’s Geraldine Wong and Derek Tan have also maintained their “buy” call and target price of $2.70 as the REIT’s 1HFY2024 DPU stood ahead of their estimates.
“FCT’s portfolio continues to outperform its peers on several fronts, with tenant sales [around] 15% above pre-Covid levels, unscathed by either the return-to-office trend or broader reopening,” write Wong and Tan in their April 26 report. Other key positives are the higher-than-expected reversions this quarter, along with NEX’s reversions, which outperformed the portfolio average, they note.
“With an occupancy cost of 15.6% for FY2023, below the 16.6%–17% 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 add.
In their view, FCT’s recent acquisition of Nex was the right move, as it positions the REIT as the “King of suburban retail malls”.
“With a dominant position in the suburban retail space, supported by robust operational metrics (99% occupancy with strong reversionary prospects), we remain firmly positive on FCT, with forward yields of [around] 5.4%–5.6% on offer,” say Wong and Tan.
Maybank Securities’ Krishna Guha, like his peers, has kept his “buy” call and target price of $2.40.
In his report dated April 26, Guha notes FCT’s “resilient” operations, highlighting its high single-digit rental reversion and near-full occupancy of its retail portfolio backed by a healthy operating performance.
Funding metrics also remained “relatively steady” with higher gearing but lower funding costs as higher-cost debt was pared down with divestment proceeds.
Keeping FCT’s lower borrowing expense and contribution from Nex in mind, along with an enlarged unit base and a higher proportion of fees in units, Guha has raised his FY2024 DPU estimate by 2%.
Finally, PhillipCapital’s Darren Chan has kept his “accumulate” call with the same target price of $2.38, with FCT’s 1HFY2024 DPU in line with his expectations.
In his April 26 report, Chan noted only positives including the strong retail portfolio occupancy of 99.9% in the 2QFY2024, improvements in tenant sales and shopper traffic within the same quarter, as well as the improvement in FCT’s allin cost of debt. There were no negatives.
Looking ahead, the analyst expects resilient tenant sales and a low incoming supply of new retail malls to support FCT’s ability to increase its rents. In FY2024, he is expecting FCT to report a positive rental reversion of 7% in FY2024 supported by the healthy occupancy cost of around 15.5%
“Inorganic growth opportunities include the acquisition of the sponsor’s stake in Northpoint City South Wing and the remaining 50% stake in Nex. Utility costs are expected to increase slightly in FY2024, from 10% of overall opex to 11%,” he writes. Chan also sees subsequent contributions from Tampines 1 as over 80% of the mall’s AEI space will be handed over to tenants by May this year. The AEI is expected to be fully completed by September.
Based on his unchanged estimates, FCT is trading at an FY2024 DPU yield of 5.6%. —