Maybank Securities, CGS International and OCBC Investment Research (OIR) have maintained their “buy” calls on Frasers Centrepoint Trust J69U (FCT) following its 2HFY2024, ended Sept 30, announcement released on Oct 25.
OIR has increased its fair value estimate to $2.53, up from $2.46 previously. CGSI has kept its target price unchanged at $2.68, while Maybank has downgraded its target price to $2.50, from $2.55 previously.
In its 2HFY2024 results, FCT posted a robust operating performance that was supported by high committed portfolio occupancy and high single-digit positive reversion.
FCT’s gross revenue and net profit income (NPI) fell by 2.5% and 0.6% y-o-y to $179.5 million and $128.8 million, respectively. However, adjusted for the divestment of Changi City Point and asset enhancement initiatives (AEI) at Tampines 1, 2HFY2024 revenue and NPI was $155 million and $111.6 million, representing a 4.4% and 4.7% y-o-y growth respectively.
Distribution per unit (DPU) for the 2HFY2024 came in flat at 6.02 cents, while FY2024’s DPU was 12.042 cents.
This accounted for 100.4% of CGSI’s and 100.9% of OIR’s FY2024 forecasts, slightly exceeding their expectations.
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Positive rental reversions and stable occupancy
FCT’s 4QFY2024 occupancy was unchanged q-o-q at 99.7%, while rent reversion for the full year came in at 7.7%.
The OIR team notes that the fact that this rental uplift was for a “sizeable” 31% of FCT’s retail portfolio net lettable area (NLA) makes it even more impressive.
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“Causeway Point clocked healthy rental reversions of 8.8% for 43% of the mall’s NLA and we believe this reflects retailers’ confidence, notwithstanding the upcoming Johor Bahru Singapore Rapid Transit System earmarked for end 2026,” OCBC adds.
In FY2024, tenant sales and shopper traffic increased by 1.2% and 4.2% respectively. In 4QFY2024 alone, tenant sales grew 0.6% y-o-y.
CGSI analysts Natalie Ong and Lock Mun Yee note that occupancy increased from 15.6% in FY2023 to 16% in FY2024, as such they are of the opinion that it should continue to support positive reversions in FY2025 forecasts.
Portfolio valuation
FCT’s FY2024 portfolio valuation increased by $80 million or 1.2% y-o-y to $5.28 billion.
According to Ong and Lock, this is “driven by higher appraised values of Tampines 1 post-AEI and NEX on improved rents”.
The AEI in Tampines 1 was conducted over six quarters, from 2QFY2023 to 4QFY2024, and unlocked an additional 9,000 sq ft of NLA.
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Ong and Lock note that the property saw a $44 million uplift, exceeding the AEI cost of around $38 million. Furthermore, it delivered an ROI of above 8%, exceeding its initial target of 7%.
Gearing fell to 38.5% from 39.1% in 3QFY2024m while cost of borrowing was stable at 4.1%. FCT’s interest coverage ratio (ICR) improved to 3.41 times from 3.26 times in the previous quarter.
FCT’s management has secured facilities to refinance its debt due in FY2025, with no refinancing needs until FY2026.
“Overall debt hedged increased to 71.4%, while all-in average cost of debt edged down by 10 basis points (bps) q-o-q to 4.1%. Management expects this to stay around the low-4% level in FY2025,” OIR notes.
New AEI
“Following the completion of Tampines 1 AEI, FCT will embark on AEI for Hougang Mall, yet another mall from the earlier acquired AsiaRetail Fund portfolio, for $51 million capital expenditure (capex) with target ROI of around 7%,” Maybank analyst Krishna Guha notes.
The AEI will happen over a year, adding around 9% to NLA, rebalancing Hougang Mall’s trade mix and increase the F&B proportion from 26% to 32% of NLA.
CGS International’s Ong and Lock note that while management has stated that no leases have been committed, FCT has received interest for around 50% of the AEI space.
“We remain confident of FCTs ability to unlock value within its portfolio, improving the quality and offerings in its malls,” Ong and Lock add.
Looking ahead, CGS International’s Ong and Lock have kept their FY2025 to FY2026 DPS unchanged as the payment of management fees in units offsets the Hougang Mall AEI. They introduced FY2027 forecast estimates and roll over to FY2026 to FY2020 forecasts DPS.
Maybank’s Krishna Guha lowers his FY2025 and FY2026 DPU forecasts by 0.2% and 1.6% accounting for the downtime for Hougang Mall AEI and lower reversion, slightly offset by increased contribution from Tampines 1 and joint venture (JV) distribution.
On the other hand, OCBC raises its FY2025 DPU estimate by 0.7% and roll forward its valuations with a marginally lower cost of equity assumption of 6.1%.
As at 4.06pm, units in FCT are trading at $2.25 flat.
