Broker's Digest: FCT, MLT, KORE

PhillipCapital analyst Natalie Ong has reiterated her “buy” call on Frasers Centrepoint Trust (FCT) but with a lowered target price of $2.64, from $2.83. This is in anticipation of higher cost of equity estimated at 6.48%, up from 6.38% previously.

For 1QFY2022 ended December last year, FCT’s occupancy was up 2.1% y-o-y, with six out of nine malls achieving occupancies between 97% to 100%. The three laggards 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 Changi Business Park and Singapore Expo, saw weaker demand as it was impacted by lower footfall.

Meanwhile, occupancy at Central Plaza fell from 91.8% to 71.7% following the exit of an anchor tenant. Ong says anchor tenants are usually offered more favourable rates and FCT could see positive reversions should the space be subdivided out and leased to multiple tenants

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“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 link way 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,” she adds.

Ong also 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 FY2022 reduced from 37.2% to 22.8%.

As at end January, half or remaining FY2022 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 FY2021’s –0.6%,” she adds.

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FCT also benefited from the increase in dine-in and group size and festivities, with tenant sales in November and December reaching 101% and 106% of pre-pandemic levels.

Says Ong: “While tenant sales have recovered to pre-pandemic levels, recovery varies among and within trade sectors. For instance, kiosk and easy-takeaway F&B tenants located along the walkways to the MRT stations 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.” — Khairani Afifi Noordin

Mapletree Logistics Trust
Price target:
OCBC Investment Research “buy” $2.05
Maybank Securities Singapore “buy” $2.35

Resilient portfolio plus active recycling

Analysts are positive on Mapletree Logistics Trust (MLT) following its latest 3QFY2022 ended December 2021 earnings where net property income was up 17.4% y-o-y to $146.4 million, and distribution per unit was up 5.8% y-o-y to 2.185 cents. Overall portfolio occupancy stood at 97.8%, unchanged for three consecutive quarters but rental reversions were up 2.5% in 3QFY2022.

In their Jan 31 note, OCBC Investment Research is keeping its “buy” call on MLT with a fair value estimate of $2.05.

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“Although MLT will not be immune to uncertainties in the macroeconomic environment, we expect it to remain relatively more resilient vis-àvis its peers. We also see MLT as a key beneficiary of the structural shift towards more robust e-commerce growth trends ahead,” says the research team, which likes this REIT for its diversified portfolio and the manager’s capital recycling activities.

Management has also guided that it was looking at potential divestments of $200–$400 million over the next 12 months, and is prepared to push its gearing slightly above 40% should inorganic growth opportunities arise. It is also ready to pursue a strategy of acquiring more unstabilised assets in markets where it has an established presence, on the view that it will be able to ramp up the property’s occupancy to approximately 90% within 12 months of purchase.

Similarly, Maybank Securities Singapore’s Chua Su Tye has also kept his “buy” call and $2.35 target price. He expects the REIT’s occupancy rate to remain resilient with demand from ecommerce tenants and third-party logistics providers. “We see room for rental recovery to strengthen in coming quarters,” says Chua, who overall likes the stock for its sound balance sheet and accelerated pace of divesting. — Samantha Chiew

Keppel Pacific Oak US REIT
Price target:
DBS Group Research “buy” 85 US cents
RHB Group Research “buy” 92 US cents

Steady performer to benefit from US economy reopening

DBS Group Research and RHB Group Research are keeping their “buy” calls on Keppel Pacific Oak US REIT (KORE) after the REIT saw DPU for 4QFY2021 ended December last year up by 2.6% y-o-y to 1.60 US cents (2.152 cents), due to newly acquired assets. For the whole of FY2021, DPU was up 1.8% y-o-y to 6.34 US cents.

DBS analysts Rachel Tan, Geraldine Wong, Dale Lai and Derek Tan, have kept their target price on KORE unchanged at 85 US cents, which implies a yield of 7.4%, risk-free rate of 2.5% and a 1x P/NAV

They like KORE’s unique exposure to the technology sector, with its assets in the tech hubs of Seattle, Austin and Denver in the US making up more than 60% of its net property income. KORE will also benefit from the reopening of the US economy and the return-to-office trend.

Meanwhile, RHB analyst Vijay Natarajan raised his target price to 92 US cents from 90 US cents, citing KORE’s compelling valuation at 0.9 times book value. Despite the current market challenges, KORE’s DPU also remains on the uptrend, he adds. Its balance sheet is also well-poised to cushion the impact of interest rate hikes. As it is, KORE has 83.4% of debt hedged and 8% due for refinancing in FY2022.

For FY2022, Natarajan estimates that the REIT will see rent growth of around the mid-single digits, following a 6% increase achieved in FY2021. “There is also redevelopment potential at The Plaza, where plans are underway to build a multi-family asset on top of the existing parking garage.” — Felicia Tan