ANALYSTS have upgraded Frasers Centrepoint Trust (FCT) to a “buy” rating, citing its high retail portfolio occupancy and ongoing asset enhancement initiatives (AEI) as positive signs for its outlook.
The trust posted a 99.5 per cent committed occupancy for its retail portfolio for the first quarter of its financial year ending September 2025, in a business update on Wednesday (Jan 22).
Phillip Securities upgraded its rating for FCT to a “buy” from “neutral”, with a S$2.44 target price. RHB did the same, and pegged S$2.35 as a price target. These were above FCT’s latest closing price of S$2.12 on Thursday. Maybank Securities reiterated its “buy” call for the trust, with a price target of S$2.50.
Maybank Securities analyst Krishna Guha said: “The quarter’s business update demonstrates continued outperformance of FCT’s quality portfolio versus the sub-sector.”
Noting stable operational performance and higher-than-expected tenant sales, RHB analyst Vijay Natarajan said: “FCT’s suburban malls stand well-positioned to benefit from limited supply, growing household income and government support measures.”
He and Phillip Securities senior research analyst Darren Chan said that its recent price weakness provides an “attractive entry point” for investors.
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The pair also believe that the counter stands to benefit from price catalysts, citing accretive AEIs and acquisitions, including that of Northpoint City South Wing, as factors that may lift its price.
The trust’s portfolio occupancy dipped marginally from 99.9 per cent in the year-ago period and 99.7 per cent in the prior quarter on the back of vacancies due to AEIs or tenant repositioning, though occupancy has remained high.
Phillip Securities’ Chan believes that FCT’s near-full occupancy makes it “well-positioned to negotiate higher rents” in spite of the slight dip.
Concerns about potential sale leakages at Causeway Point mall in Woodlands from the upcoming Johor Bahru-Singapore Rapid Transit System set to operate by 2026 are “overblown”, said RHB’s Natarajan.
Such leakages can be offset by factors such as higher cross-border traffic, Woodlands’ rising prominence as a regional centre, and planned increases to the population of the area, which is earmarked for 10,000 new homes over the next five years, he said.
He added: “FCT’s strong and long track record of operating suburban malls and its sizeable mall network… enable it to effectively reposition some of the malls’ generic trade segments that could be more negatively impacted by cheaper cost alternatives available across the Causeway.”
Noting the growth in tenants’ sales and shopper traffic for Q1 FY2025, Phillip Securities’ Chan expects the trend to sustain.
“We expect retail spending and tenant sales to be supported by population growth in catchment areas, rising median household incomes, and government initiatives such as the CDC vouchers and the progressive wage model for lower-wage workers,” he said.
With FCT’s strong balance sheet, Q1’s improvements to average cost of debt, and the trust having no refinancing for FY2025, Chan predicts the all-in cost of debt for the financial year to stay unchanged at 4 per cent.
He added that the trust is targeting a 7 per cent return on investment on the Hougang Mall AEI. The project has a capital expenditure of S$51 million, and had secured a pre-commitment rate of 50 per cent before work began.
He sees high potential for strong rental reversions, given that the mall’s management plans to offset income losses during the period by collecting more asset management fees in units. Additionally, the mall will stay open during the AEI, and occupancy is set to stay above 80 per cent.
Looking ahead, RHB’s Natarajan predicts that earnings will be steady and distribution per unit for FY2025 will return to “growth mode”. He noted that FCT recently secured a buyback mandate at its recent annual general meeting.
Maybank Securities’ Guha said: “New home growth, growing median household income, supportive government policy measures and proactive asset management should help FCT deliver a resilient performance and maintain a stable distribution profile.”
Units of FCT were trading up 0.9 per cent or S$0.02 at S$2.14 as at 12.09 pm on Friday.
