Analysts from CGS-CIMB Research, OCBC Investment Research (OIR), PhillipCapital and UOB Kay Hian have maintained “add” or “buy” on Frasers Centrepoint Trust (FCT) as the trust reported an improved distribution per unit (DPU) of 5.996 cents for the 1HFY2021 ended March.
See: Frasers Centrepoint Trust reports 28.4% higher 1H21 DPU of 5.996 cents, boosted by enlarged retail portfolio
All four brokerages have, however, reduced their target prices on the REIT. CGS-CIMB has reduced FCT’s target price to $2.87 from $3.01 previously, while OCBC has reduced its fair value estimate to $2.78 from $2.95. PhillipCapital has cut its target price to $2.88 from $2.93, while UOB Kay Hian has reduced its target price to $3.06 from $3.18.
FCT’s higher 1HFY2021 DPU, which was boosted by an enlarged retail portfolio, stood in line with all four brokerages’ expectations.
The REIT also reported stable operating metrics with portfolio occupancy dipping a slight 0.4 percentage points q-o-q to 96.0% in the 1HFY2021.
To CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee, FCT, with 35.2% gearing after the completion of its disposal of Yew Tee Point, has “large ample headroom for acquisitions”.
“In addition to its sponsor’s assets, we understand that there are still quality individual suburban malls in Singapore which FCT could look to acquire,” they write.
Apart from the lower target price, Eing and Lock have lowered their DPU estimates for FY2021 to FY2023 by 3% to 5% after the divestment of Yew Tee Point and smaller-than-expected contribution from the ARF acquisition.
“Faster recovery versus peers could help to re-rate the stock,” they say.
OCBC’s research team says it expects a “firm recovery” from FCT in FY2021.
“[We] believe FCT’s portfolio of suburban malls in Singapore are relatively more defensive and resilient in nature given their dominant positions in their respective catchment areas,” it writes.
“The addition of the PGIM ARF portfolio on a 100% basis has also boosted FCT’s scale and profile within the Singapore retail landscape,” it adds.
FCT has established a strong track record of delivering positive DPU growth every year since its listing in July 2006 to FY2019, with the exception of FY2020 due to Covid-19.
The OCBC team has also factored in the divestment of Yew Tee Point and have lowered its DPU estimates for FY2021 and FY2022 by 0.5% and 1.8% respectively.
“We also increase our risk-free rate assumption from 1.55% to 1.9%,” it writes.
The team believes catalysts include DPU accretive acquisitions for the REIT, the divestment of assets at prices above valuation, as well as better-than-expected momentum in footfall and tenants’ sales for its malls.
PhillipCapital analyst Natalie Ong has also reduced her DPU estimates for the FY2021 and FY2022 by 1.2% and 1.4% after accounting for the divestment of Yew Tee Point.
“FCT is trading at an attractive FY2021 DPU yield of 5.5%. Catalysts are expected from growth in catchments surrounding its malls and synergies from an enlarged scale after its ARF acquisition,” she writes.
Looking ahead, Ong estimates FCT could save costs as it trims expenses with technology.
“Over the years, it has increased the number of its CCTVs and their quality to reduce the number of security personnel required. It has also consolidated fire-command centres for all its malls to reduce duplication and manpower costs.”
“It intends to do the same for mall-cleaning services and optimise all mall performances through economies of scale. While immediate savings are not substantial, costs could be kept in check even as wages climb,” she says.
FCT may also look at acquisitions opportunistically, focusing on Singapore and suburban retailing.
“Acquisitions could come from its sponsor’s pipeline of assets, increasing its stake in Waterway Point, or acquiring or partnering companies with only one mall in their portfolios. The cost of implementing and maintaining loyalty programmes or omnichannel infrastructure is higher for single-mall owners, which may present acquisition opportunities.”
UOB Kay Hian analyst Jonathan Koh sees the potential acquisition of Northpoint City South Wing to be the next catalyst for the REIT.
He is also positive on FCT’s defensive distribution yield of 5.4% for the FY2022.
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Similar to the analysts from the first three brokerages, Koh notes that the divestments of smaller suburban malls have opened up room on FCT’s balance sheet to prepare for the acquisitions.
“It could tap on its sponsor pipeline, such as Northpoint City South Wing. It will also explore opportunities for acquisitions from third-party vendors, such as the remaining 60% stake in Waterway Point. With low aggregate leverage of 35.2%, FCT has the financial capacity to pursue more acquisitions,” he says.
Koh has also reduced his FY2022 DPU estimate by 3% due to the divestment of Anchorpoint and Yew Tee Point.
Share price catalysts include “[a] gradual but steady recovery in shopper traffic and tenant sales, accompanied by progressive easing of social distancing measures, [and the] acquisition of Northpoint City South Wing from sponsor Frasers Property,” he adds.
Units in FCT closed 1 cent higher or 0.4% up at $2.49 or 1.04 times P/NAV, according to PhillipCapital’s estimates.
