Company Reports

We keep our fair value estimate of SGD 2.42 per unit for narrow-moat Frasers Centrepoint Trust, or FCT, after an in-line third-quarter fiscal 2024 (ending September) business update. The trust’s fiscal third-quarter shopper traffic and tenant sales year-on-year growth slowed to 4.1% and 0.7%, respectively. This is within our expectations, given the strong 16% year-on-year growth in outbound departures of Singapore residents from April 2024 to May 2024, according to the Singapore Immigration & Checkpoints Authority. Nevertheless, FCT’s retail asset portfolio continues to perform well, with every mall achieving more than 99% committed occupancy. Management highlighted that its asset enhancement initiative at Tampines 1 has achieved 100% committed occupancy and is projected to outperform its targeted return on investment of 8%. Besides rejuvenating common areas like the toilets, entrance, and customer service counter, the AEI also introduced 68 new retail concepts to expand the mall’s offerings. Looking ahead, management guided for another upcoming AEI project to drive medium-term growth.

Frasers Centrepoint Trust, or FCT, predominantly owns a portfolio of income-producing retail properties located in suburban areas across Singapore. Its malls are located within densely populated residential areas that are next to key transportation nodes. The high volume of commuter traffic generated helps to ensure a stable and recurring shopper footfall for the mall and in return drive sales growth for its tenant base. There is also limited direct competition for most of its retail properties, which helps to position it as the main mall serving the population within the vicinity. Favorable locations, high shopper footfall, and growing annual sales are highly desirable features for existing and new tenants, allowing FCT to charge premium rents relative to average market rates. With a staggered lease expiry profile and approximately 53% of its gross rental income contributed by tenants providing nondiscretionary products and essential services, we expect FCT to remain resilient throughout economic cycles.

Frasers Centrepoint Trust, or FCT, predominantly owns a portfolio of income-producing retail properties located in suburban areas across Singapore. Its malls are located within densely populated residential areas that are next to key transportation nodes. The high volume of commuter traffic generated helps to ensure a stable and recurring shopper footfall for the mall and in return drive sales growth for its tenant base. There is also limited direct competition for most of its retail properties, which helps to position it as the main mall serving the population within the vicinity. Favorable locations, high shopper footfall, and growing annual sales are highly desirable features for existing and new tenants, allowing FCT to charge premium rents relative to average market rates. With a staggered lease expiry profile and approximately 53% of its gross rental income contributed by tenants providing nondiscretionary products and essential services, we expect FCT to remain resilient throughout economic cycles.

Frasers Centrepoint Trust’s, or FCT’s, first-half fiscal 2024 (ending September) net property income fell 8.4% year on year to SGD 124.6 million, below our expectations and only making up 46.8% of our full-year estimate. The miss was largely due to lower-than-expected contributions from Tampines 1 mall, which is undergoing asset enhancement initiative. This was offset by lower-than-expected financing cost as the trust paid off higher interest rate debts using proceeds from the equity fund raising exercise in February 2024 and divestment of Changi City Point and Hektar REIT in October 2023 and December 2023, respectively. As such, first-half distribution per unit, or DPU, of SGD 0.06022 remains in line with our estimate. We fine-tuned our leasing and debt assumptions and lift our DPU estimates for 2024-26 by 0.8%-2.5%. Our fair value estimate of SGD 2.42 per unit remains unchanged. Based on current price, the trust trades at a fiscal 2024 distribution yield of 5.6%. Although the trust screens as undervalued, our preference among Singapore REITs is Keppel REIT, which trades at a more attractive distribution yield of 6.8%.

Frasers Centrepoint Trust, or FCT, predominantly owns a portfolio of income-producing retail properties located in suburban areas across Singapore. Its malls are located within densely populated residential areas that are next to key transportation nodes. The high volume of commuter traffic generated helps to ensure a stable and recurring shopper footfall for the mall and in return drive sales growth for its tenant base. There is also limited direct competition for most of its retail properties, which helps to position it as the main mall serving the population within the vicinity. Favorable locations, high shopper footfall, and growing annual sales are highly desirable features for existing and new tenants, allowing FCT to charge premium rents relative to average market rates. With a staggered lease expiry profile and approximately 53% of its gross rental income contributed by tenants providing nondiscretionary products and essential services, we expect FCT to remain resilient throughout economic cycles.

Frasers Centrepoint Trust is buying sponsor Frasers Property Limited’s 24.5% effective stake in Nex mall. FCT’s total acquisition cost is SGD 523.1 million. The trust intends to raise SGD 200 million through a private placement to fund part of this acquisition. The agreed property value of SGD 2.12 billion for NEX implies a yield of 4.8%. We estimate this to be similar to the entry yield when FCT and its sponsor jointly acquired Mercatus Co-operative's 50% stake in NEX last year. FCT expects the deal to be mildly accretive, adding 1.5% to its fiscal 2023 (ending September) distribution per unit after adjusting for the divestment of Changi City Point, Hektar REIT, and the proceeds from the proposed private placement. Management also estimates that the trust’s gearing will improve to 37.8% from 39.3% in September 2023.

We maintain our fair value estimate of SGD 2.38 for Frasers Centrepoint Trust after an in-line first-quarter fiscal 2024 (September year-end) business update. Excluding Tampines 1, which is undergoing asset enhancement, the group’s portfolio occupancy improved 0.2 percentage point quarter on quarter to 99.9%. Meanwhile, first-quarter fiscal 2024 portfolio tenants’ sales were 0.7% lower year on year due to several key anchor tenants renovating their shops during the period in preparation for the upcoming festive season. Management is already seeing the positive effects of the completed renovation on their tenants’ sales and believes it will continue to drive growth into 2024. As for shopper traffic, FCT aims to improve this metric by organizing more events to attract shoppers and drive sales.

We retain our fair value estimate of SGD 2.38 per unit for Frasers Centrepoint Trust, or FCT, after the in-line second-half fiscal 2023 (ending September) results. Overall, we like that management is taking active steps to reconstitute its portfolio by divesting its noncore interests in Hektar REIT and Changi City Point, and redeploying the proceeds to repay debt that would otherwise have a negative impact on its distribution per unit, or DPU, if refinanced at a higher interest rate in the current environment. We think the trust is starting fiscal 2024 in better shape than a year before and expect it to benefit from the strong shopper traffic and tenant sales growth in fiscal 2023 that should set the stage for better positive rental reversions. Based on its last closing price of SGD 2.11, the trust trades at a fiscal 2024 dividend yield of 5.63%. We think the trust is slightly undervalued and we like its portfolio of high-quality suburban malls that we believe will stay resilient in times of economic uncertainty and volatility.

Frasers Centrepoint Trust, or FCT, predominantly owns a portfolio of income-producing retail properties located in suburban areas across Singapore. Its malls are located within densely populated residential areas that are next to key transportation nodes. The high volume of commuter traffic generated helps to ensure a stable and recurring shopper footfall for the mall and in return drive sales growth for its tenant base. There is also limited direct competition for most of its retail properties that helps to position it as the main mall serving the population within the vicinity. Favorable locations, high shopper footfall, and growing annual sales are highly desirable features for existing and new tenants, allowing FCT to charge premium rents relative to average market rates. With a staggered lease expiry profile and approximately 54% of its gross rental income contributed by tenants providing nondiscretionary products and essential services, we expect FCT to remain resilient throughout economic cycles.

We maintain our fair value estimate for Frasers Centrepoint Trust, or FCT, at SGD 2.38 following the divestment of its retail asset, Changi City Point to an unrelated third party for SGD 338 million. The selling price is 4% above its July 2023 independent valuation of SGD 325 million and 11% above its original 2014 purchase price of SGD 305 million. We are positive on this transaction as we think that Changi City Point is the weakest retail asset within FCT’s portfolio and it does not command an efficient scale moat source due to its location and positioning. Management expects the divestment to improve its portfolio metrics with occupancy rates improving to 99.3% from 98.7% as of June 2023. We also think the premium achieved in this transaction is commendable given the profile and relatively short remaining leasehold of the asset.

Frasers Centrepoint Trust, or FCT, predominantly owns a portfolio of income-producing retail properties located in suburban areas across Singapore. Its malls are located within densely populated residential areas that are next to key transportation nodes. The high volume of commuter traffic generated helps to ensure a stable and recurring shopper footfall for the mall and in return drive sales growth for its tenant base. There is also limited direct competition for most of its retail properties that helps to position it as the main mall serving the population within the vicinity. Favorable locations, high shopper footfall, and growing annual sales are highly desirable features for existing and new tenants, allowing FCT to charge premium rents relative to average market rates. With a staggered lease expiry profile and approximately 54% of its gross rental income contributed by tenants providing nondiscretionary products and essential services, we expect FCT to remain resilient throughout economic cycles.

Sabana REIT’s unitholders have voted to remove ESR Group as its manager and internalize the REIT management function. This move is unprecedented in Singapore, but we think it has positive implications for the industry. This event occurred because activist investor Quarz Capital led the push. As ESR Group holds around 21% of Sabana REIT compared with Quarz Capital’s 14%, ESR Group only held a slight advantage going into the vote. Ultimately, we think ESR Group lost the vote because of concerns about potential conflicts of interest—ESR Group is the sponsor of more than one industrial REIT in Singapore—and the perception that Sabana REIT has underperformed its peers due to poor management by ESR Group.

Frasers Centrepoint Trust’s third-quarter fiscal 2023 (ending September) business update was largely in line with our expectations. Shopper traffic and tenants’ sales continue to post impressive year-on-year growth of 16% and 5%, respectively, while year-to-date tenants’ sales averaged 16% above pre-COVID level (2019). The trust also completed its refinancing exercise for fiscal 2023 and lengthened its average debt maturity to 2.5 years as of the end of June 2023, from 1.9 years at the end of March 2023. Meanwhile, the proportion of fixed-rate debt fell to 63% from 76.4% in the previous quarter. We view this positively because we think interest rates are close to peaking and should start falling in 2024. With no major surprises, we retain our fair value estimate of SGD 2.38 per unit. We think the trust is slightly undervalued, and we continue to like its portfolio of high-quality suburban malls, which we believe can help the trust weather any economic downturn due to their roles in providing necessity shopping.

Narrow-moat Frasers Centrepoint Trust’s, or FCT’s, first-half fiscal 2023 (ending September) results were in line with our expectations. Gross revenue and net property income improved 6.5% and 5.7% year on year to SGD 188 million and SGD 138 million, respectively, making up 50.5% and 51.7% of our full-year estimate. However, finance costs increased ahead of our expectations, rising 75.3% year on year to SGD 35.7 million, resulting in a relatively flat distribution per unit of SGD 0.0613. We fine-tune our assumptions to factor in the stronger leasing performance and a higher near-term cost of debt for the rest of fiscal 2023, leading to 1.2% downward revision in our full-year DPU to SGD 0.1227. Our fair value estimate of SGD 2.38 remains, and we think the trust is fairly valued at the current price.

Frasers Centrepoint Trust, or FCT, predominantly owns a portfolio of income-producing retail properties located in suburban areas across Singapore. Its malls are located within densely populated residential areas that are next to key transportation nodes. The high volume of commuter traffic generated helps to ensure a stable and recurring shopper footfall for the mall and in return drive sales growth for its tenant base. There is also limited direct competition for most of its retail properties that helps to position it as the main mall serving the population within the vicinity. Favorable locations, high shopper footfall, and growing annual sales are highly desirable features for existing and new tenants, allowing FCT to charge premium rents relative to average market rates. With a staggered lease expiry profile and approximately 54% of its gross rental income contributed by tenants providing nondiscretionary products and essential services, we expect FCT to remain resilient throughout economic cycles.

Frasers Centrepoint Trust, or FCT, is jointly acquiring 50% of a suburban retail mall, NEX, with its sponsor, Frasers Property Limited, or FPL, from Mercatus. After the transaction, FCT will hold a 25.5% interest in the retail mall while FPL will hold 24.5%. The remaining 50% is held between China Investment Corporation and PIM Foreign Investments. The agreed property value of the asset is SGD 2.1 billion and FCT’s total acquisition outlay, after acquisition fees, is about SGD 340 million. FCT’s management expects the deal to be mildly accretive, adding 0.52% to its fiscal 2022 (ending September) distribution per unit, or DPU, if the deal was completed on Oct. 1, 2021. We retain our fair value estimate of SGD 2.38 as we do not expect a huge change in future DPU after the transaction. However, we are positive on the acquisition as we think NEX is a high-quality suburban retail asset that efficiently and effectively serves its own submarket as a dominant shopping mall and hence, helps to fortify FCT’s narrow moat in efficient scale.

Frasers Centrepoint Trust, or FCT, predominantly owns a portfolio of income-producing retail properties located in suburban areas across Singapore. Its malls are located within densely populated residential areas that are next to key transportation nodes. The high volume of commuter traffic generated helps to ensure a stable and recurring shopper footfall for the mall and in return drive sales growth for its tenant base. There is also limited direct competition for most of its retail properties that helps to position it as the main mall serving the population within the vicinity. Favorable locations, high shopper footfall, and growing annual sales are highly desirable features for existing and new tenants, allowing FCT to charge premium rents relative to average market rates. With a staggered lease expiry profile and approximately 54% of its gross rental income contributed by tenants providing nondiscretionary products and essential services, we expect FCT to remain resilient throughout economic cycles.

Frasers Centrepoint Trust's, or FCT's, second-half 2022 results were slightly shy of our expectations with revenue and net property income coming in 5% and 7% below our estimates, respectively. The miss appears to be largely due to lower-than-expected in-place rent and net property income margin. Regardless, FCT still ended the year strongly with second-half net property income rising 6.0% year on year on the back of a 7.9% year-on-year increase in revenue. The growth is contributed by the absence of rental rebates provided to tenants and increase in atrium income following the resumption of atrium events. This is slightly offset by the loss of contribution from YewTee Point which was divested in May 2021.

Frasers Centrepoint Trust, or FCT, predominantly owns a portfolio of income-producing retail properties located in suburban areas across Singapore. Its malls are located within densely populated residential areas that are next to key transportation nodes. The high volume of commuter traffic generated helps to ensure a stable and recurring shopper footfall for the mall and in return drive sales growth for its tenant base. There is also limited direct competition for most of its retail properties that helps to position it as the main mall serving the population within the vicinity. Favorable locations, high shopper footfall, and growing annual sales are highly desirable features for existing and new tenants, allowing FCT to charge premium rents relative to average market rates. With a staggered lease expiry profile and approximately 54% of its gross rental income contributed by tenants providing nondiscretionary products and essential services, we expect FCT to remain resilient throughout economic cycles.

Narrow-moat Frasers Centrepoint Trust’s, or FCT’s, third-quarter fiscal 2022 (year ends September) results were largely in line with our expectations. Benefiting from the substantial easing of COVID-19 restrictions since end-April, shopper traffic and tenant sales climbed year on year by 32% and 23%, respectively. Despite retailers facing some near-term challenges such as manpower shortages and rising business costs, we believe retail sentiment is still positive and will continue to drive a strong operating performance for the trust in the next few quarters. However, we raise the exit cap rate used to compute the terminal value of FCT’s suburban malls and office property on the back of the more aggressive U.S. federal-funds rate hikes to combat inflation. Hence, we lower our fair value estimate to SGD 2.58 from SGD 2.74. This implies a forward distribution yield of 4.9% and price/book value of 1.1 times. In our view, the trust is undervalued at the current price. We continue to like its portfolio of high-quality suburban retail malls that we believe can help the trust weather any economic downtown, due to their roles in providing necessity shopping and essential services.