UOB Kay Hian’s Jonathan Koh has maintained his “buy” call on Frasers Centerpoint Trust with a lower target price of $2.98, down from the previous figure of $3.06.
While he did not reveal any specific reason for the lowering of the target price, he is optimistic on the stock, pointing out the REIT’s increase in distribution per unit (DPU) for 2HFY2021.
FCT declared a DPU of 6.089 cents for 2HFY2021, up 39.3% y-o-y. The results reflected full six-month contributions from the acquisition of the remaining 63.1% stake of AsiaRetail Fund (ARF), which was completed on 27 Oct 2020.
Furthermore, occupancy in its malls has risen higher, with retail occupancy improving slightly by 0.9ppt q-o-q to 97.3% in 4QFY2021.
Koh notes the sequential improvement was led by Causeway Point, Tiong Bahru Plaza and Waterway Point (where FCT owns a 40% stake) where occupancy improved 0.5%, 2% and 4.6% respectively to 98.6%, 98.3% and 98.4%.
See: Analysts mixed on FCT's performance after 3Q21 update
At Waterway Point, retail space vacated by H&M was reconfigured and backfilled by smaller specialty shops, such as Häagen-Dazs, Levi, fashion brand YISHION, Gram Cafe & Pancakes and Toys R Us.
Tenant sales are also “tracking close” to pre-Covid-19 levels, with shopper traffic at about 60% of pre-Covid-19 levels in 4QFY2021.
As group size for dining in at F&B outlets was eased from two to five vaccinated persons on 10 Aug 2021, tenant sales improved from 93% in August to 98% of pre-Covid-19 levels in September.
But he does point out that sales from trade sectors remain uneven. Jewellery and watches are the best performing, while sectors like education, supermarkets & grocers and sports apparel & equipment also registered positive y-o-y growth.
Koh also points out that the majority of FCT’ssuburban malls registered mild positive reversions. Rental reversion was -0.6% in FY2021.
White Sands, Waterway Point, Tiong Bahru Plaza and Causeway Point achieved positive rental reversions of 2.5%, 1.3%, 0.8% and 0.6% respectively.
On the other hand, Changi City Point suffered a severe negative rental reversion of 9.8% due to the drop in footfall from Changi Business Park and Singapore Expo.
More notably, leases expiring in FY2022 accounted for a sizeable 38.7% of total NLA and 35.6% of gross rental income.
Koh thinks that FCT presents a “defensive yield from necessity consumption”, saying its malls are well located with connectivity to MRT stations and bus interchanges, close proximity to dense population catchments, and cater to essential services and non-discretionary spending.
He also sees that current elevated new cases of Covid-19 infections are expected to persist for another 3-6 months, before reaching a “new normal of manageable new cases” at a few hundred per day.
Singapore’s Multi-ministry Taskforce said if the weekly growth rate for Covid-19 infection falls below 1x, they would consider easing safe distancing measures.
Koh says this could mean that the government could allow groups of up to five household members to dine in at F&B outlets, which would usher shoppers back to suburban malls.
In addition, FCT has completed its reconstitution to refocus on larger and dominant suburban malls. FCT has divested three sub-scale suburban malls, namely Bedok Point, Anchorpoint and YewTee Point, for total proceeds of $438 million. The reconstitution enhances resiliency from dominant suburban malls
This has also allowed it to repay $220 million of borrowings with proceeds from the divestment of Yew Tee Point.
As such, aggregate leverage improved 0.6% q-o-q to 33.3% in 4QFY2021, while average cost of debt remains unchanged at 2.2% and improves overall cost efficiency.
Koh thinks that some share price catalysts can be a gradual but steady recovery in shopper traffic and tenant sales, accompanied by progressive easing of social distancing measures, as well as an acquisition of Northpoint City South Wing from sponsor Frasers Property.
Separately, DBS Group Research’s Geraldine Wong and Derek Tan also maintain their “buy call” and target price of $2.90.
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Wong and Tan observes that there are retail headwinds, but “ remain convinced that FCT’s portfolio of suburban malls is well-anchored against the recent tightening measures.”
They, like the UOB analysts, note the high occupancy of FCT’s malls, and say “While Singaporeans get used to periodic lockdowns and plan their lives around restriction measures, dominant suburban malls continue to benefit from the work-from-home trend with prime slots ‘changing hands quickly’ and negative reversions on the brink of a reversal.
They expect more deals in the pipeline,saying there could be the prospective acquisition of Northpoint City South Wing and further stakes in Waterway point on the horizon. Central Plaza (linked to Tiong Bahru Plaza) is also another possible asset where value can be crystalised, Wong and Tan say
Units of FCT closed at 2.39 on Oct 28, with a FY2021 price to book ratio of 1 and a dividend yield of 5.6%
