Analysts have all maintained their “buy” and “add” calls on Frasers Centrepoint Trust (FCT) with raised target prices.
UOB Kay Hian analysts Jonathan Koh and Loke Peihao, who have upped their target price of $3.15, up from $3.10, said FCT’s 2HFY2020 results demonstrated the “resiliency” of its suburban malls, despite recording a y-o-y drop in 2HFY2020 revenue and net property income (NPI) of 33.8% and 43.8% yoy, respectively.
The decline in revenue and NPI were mainly due to rental rebate assistance granted to tenants.
Excluding the rental relief of $27.4 million, FY2020 gross revenue and NPI would have declined only 2.4% and 0.7% y-o-y respectively.
For 2HFY2020, FCT has released distribution of $18.0 million, which was retained during 1HFY2020. It reported distribution per unit (DPU) of 4.372 cents for the same half-year period.
The analysts also noted that portfolio occupancy inched up 0.3 percentage points q-o-q to 94.9%. They elaborated occupancies at Causeway Point and Changi City Point were stable at 96.6% and 90.4% respectively, while occupancies at Waterway Point and YewTee Point improved 1.6ppt and 1.1 percentage points to 96% and 97.1%, respectively.
They think larger malls have fared better as retailers consolidate their networks at larger malls, while smaller malls lack strong anchor tenants.
In addition, FCT achieved positive rental reversion of 4.2% for FY20, higher than their estimates of 3.2% in 2HFY20.
The resiliency was attributed to the good locations of FCT’s suburban malls that are well connected to MRT stations and have strong catchment of the residential population. They also highlighted a substantial portion of the renewals was completed in 1HFY2020, prior to the circuit breaker
CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee have also raised their target price for FCT from $2.83 to $2.89, noting that the REIT’s monthly tenant sales recovered to 94-97% of pre-Covid-19 levels in July to September 2020. Shopper traffic however recovered at a slower rate to about 60% of pre-Covid-19 levels in the same three-month period.
They expect shopper traffic to improve going forward, and said the festive and holiday seasons at the year-end would support a further recovery in shopper traffic and tenant sales.
The gradual return of the office crowd next year would also help to improve traffic as its malls are mainly located near the transportation nodes. This should support recovery of rental reversion going forward.
Eing and Lock said while rental pressure is inevitable in the near term, they expect FCT to fare better than its downtown mall peers due to its lower reliance on tourists and its higher proportion of essential trades.
For Maybank Kim Eng’s Chua Su Tye, FCT’s divestment of Bedok Point along with the consolidation of FCT’s Asia Retail Fund (ARF) assets from Oct 27 has led him to raise FY21-22 DPUs by 4-6%. To this end, Chua has also upped his target price on FCT to $2.90 from $2.78 previously.
He said the transactions, backed by $1.3 billion in new equity, has raised its assets under management (AUM) by 68% to $6.7 billion and reinforced its market share in the more resilient suburban malls space.
Chua also concurred that tenant sales have returned close to pre-Covid levels, ahead of 60-70% for shopper traffic, and were led by a recovery in the household, supermarket, sports, and jewellery & watches categories.
He sees further improvement with the easing of safe distancing measures in the Phase 3 reopening, although “performances will likely vary across both trades and tenancies.”
DBS Group Research’s Geraldine Wong and Derek Tan have also upped FCT’s target price to $3 from $2.94 previously, saying that the REIT ‘back in the groove’ and that it has entered a “new era of growth” with the completion of the acquisition.
The analysts add that they “remain excited that FCT can deliver a potent mix of growth and stability” in the medium term, with one of the largest exposures in the suburban retail portfolio in Singapore.
Maybank Kim Eng’s Chua Su Tye, who raised his target price to $2.90 from $2.78, also highlighted the Trust’s “suburban strength”. In his report, Chua noted that its portfolio occupancy rose q-o-q from 94.6% to 94.9% in 4Q20, as Yew Tee Point improved from 96.0% to 97.1%, and with occupancies maintained at >=95.0% for its three largest malls.
He said they contribute 65% of the 31.5% of leases that are due for renewal in FY21, and “should cushion occupancies, given their dominance in their respective submarkets.”
FCT tenant sales have returned close to pre-Covid levels, ahead of 60-70% for shopper traffic, and were led by a recovery in the household, supermarket, sports, and jewellery & watches categories.
Chua sees further improvement with the easing of safe distancing measures in the Phase 3 reopening, although performances will likely vary across both trades and tenancies.
On the other hand, PhillipCapital analyst Natalie Ong gave a target price of $2.79 and largely concurred with the points above, but also highlighted that other revenue for FCT fell 24.9% YoY due to lower carpark and marketing revenue.
Ong added this was in tandem with lower footfalls and an absence of atrium revenue during Phase 2 due to social distancing.
However, as details on social-distancing requirements in Phase 3 reopening have not been disclosed, she said this “may continue to weigh on atrium revenue.”As at 1.37pm, shares of FCT were trading at $2.24, with a FY21 price to book ratio of 0.9 and a dividend yield of 6.5%
