Analysts at DBS Group Research and PhillipCapital Research have kept their “buy” and “accumulate” calls as well as raised their target prices for Frasers Centrepoint Trust J69U (FCT) to $2.70 and $2.38 respectively following the trust’s recent acquisition of an additional 24.5% stake in NEX mall.
PhillipCapital analyst Darren Chan favours the transaction as NEX is a high-quality asset and a good strategic fit for FCT’s diversified prime suburban retail portfolio. Post-acquisition, FCT will be the largest prime suburban retail space owner in Singapore, enhancing its ability to attract and retain tenants, possibly offering them a wider choice of locations.
DBS analysts Geraldine Wong and Derek Tan concurs, adding that the acquisition places FCT as the “king of suburban retail malls”. “With a dominant position in the suburban retail space supported by robust operational metrics, we remain firmly positive on FCT with forward yields of about 5.2% to 5.3% on offer,” they add.
Based on a 3.8% debt funding cost, the transaction is expected to be 0.4% accretive to FY2023 pro-forma distribution per unit (DPU) or 1.5% DPU accretive if including adjustments for divestment of Changi City Point and Hektar REIT.
“There is also a potential $7 million in tax savings if FCT can restructure the holding company to a limited liability partnership structure for tax transparency, subject to joint venture partner’s agreement and authorities’ approval. Post-acquisition gearing is expected to be 37.8%,” says Chan.
PhillipCapital has raised its FY2024 to FY2026 estimates by 0.4% to 1% after accounting for the acquisition. Chan expects about 5% positive rental reversion for FY2024, supported by the low occupancy cost of 15.5% post-acquisition.
Meanwhile, DBS analysts point out that after the recent $200 million equity fund raising exercise and its share price of $2.32 per share, FCT’s total market cap of $4.02 billion positions it as the 34th largest among listed companies in Singapore. They further note that according to the FTSE Straits Times Index’s (STI) last quarterly review in December, FCT is among the top companies in the STI Reserve list.
“As the largest company within the reserve list, depending on the trading performance of FCT in the coming months, there is a chance of a potential inclusion into the STI at the next review date, sometime in March.
“We see opportunity for FCT to trade higher in the coming months on expectations that the REIT could be the next constituent stock in the STI,” the analysts add.
As at 11.31, units in FCT are trading at an unchanged $2.24.
