PhillipCapital analyst Natalie Ong has reiterated her “buy” call on Frasers Centrepoint Trust (FCT) with a lower target price of $2.64 from $2.83 previously.
In a Jan 30 note, Ong has lowered her FY22 to FY26 DPU estimates by 3% to 5.3% due to the anticipated rising cost of borrowing. The lower target price is also attributed to higher cost of equity assumption at 6.48% from the previous 6.38%.
Ong notes FCT recorded a 2.1% higher occupancy y-o-y in 1Q22, with six out of nine malls achieving occupancies between 97% to 100%.
The laggards in the portfolio are Century Square, Changi City Point and White Sands, which recorded occupancies of 91.1%, 92.6% and 92.5% respectively. Changi City Point, which is located near business parks and the Singapore Expo saw weaker demand as it was impacted by lower footfall.
Occupancy at Central Plaza fell from 91.8% to 71.7% following the exit of an anchor tenant occupying a few lower floors. Ong says anchor tenants are usually offered more favourable rates — as such, FCT could see positive reversions should the space be subdivided out and leased to multiple tenants.
“FCT is also exploring leasing the space out to quasi-retail tenants such as clinics and services as Central Plaza is connected to Tiong Bahru Plaza via a linkway on the second floor. Either strategy should yield higher rents compared to the rents charged to the anchor tenant. However, the multi-tenant lease strategy may result in a longer void period required to lease all the available floors,” says Ong.
She highlights that FCT has a healthy leasing momentum with 14.4% of gross rental income de-risked. The REIT’s lease expiries by gross rental income for FY22 reduced from 37.2% to 22.8%.
As at end-Jan, half or remaining FY22 expiries at around 11% have been committed or are under advanced negotiation. “While no reversion number was disclosed, we understand that the reversions have improved from FY21's -0.6%,” she adds.
FCT also benefited from the increase in dine-in group size and festivities, with tenant sales in November and December reaching 101% and 106% of pre-pandemic levels.
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“While tenant sales have recovered to pre-pandemic levels, recovery varies among and within trade sectors. For instance, kiosk and easy-takeaway food and beverages (F&B) tenants located along the walkways to the MRTs may see a pick-up in sales due to incidental spending from more employees returning to the office. Fashion and other sit-down F&B tenants may benefit from the larger group sizes and resumption of events,” notes Ong.
As at 12.14pm, units in FCT are trading 1 cent higher or 0.44% up at $2.27.
