CGS-CIMB Research analysts Eing Kar Mei and Lock Mun Yee are positive on Frasers Centrepoint Trust (FCT) following the announcement of its acquiring the remaining 63.1% of PGIM Asia Retail Fund (ARF), on September 3.
See: Frasers Centrepoint Trust announces transformational transaction, catapulting it to the big league
“We like ARF’s malls as they are strategically located within five minutes walking distance of an MRT station," say Eing and Lock in a report dated September 4, as they maintain their “add” recommendation on the stock with a higher target price of $2.83 from $2.78 previously.
"In addition, four of the five assets are situated in low retail space per capita regions while three of the five malls are dominant malls and hence face little competition in their respective areas,” they add.
While shopper traffic of FCT and ARF are still around 60% below pre-Covid 19 levels, tenant sales have recovered back to pre-Covid 19 levels.
The manager of FCT says the transaction is a “follow-through of our strategy to increase FCT’s stake in ARF”.
“We acquired the initial 17.1% stake in ARF in April 2019, followed by acquisitions of additional interest that increased FCT’s stake to the current 36.9% when the opportunity presented itself. The acquisition of the remaining 63.1% stake is the final step to carry that strategy to fruition,” says Richard Ng, CEO of the manager.
In the same statement, FCT also announced that it will be divesting Bedok Point for a sale price of $108.0 million.
Upon completion, FCT will become one of the largest suburban mall owners in Singapore, with a total of 11 retail properties in its portfolio, from seven previously. FCT’s net lettable asset (NLA) will expand by 64% to 2.3m sq ft, its portfolio size will double to $6.65 billion.
“We expect the acquisition to further strengthen FCT’s resilience”, say Eing and Lock, while noting that Bedok Point, with its relatively lower occupancy rate and weaker rental reversions, has been one of FCT’s weaker assets.
Eing and Lock has thus raised their FY21-22 distribution per unit (DPU) by 3-4%.
“We expect FCT to see a faster recovery from the impact of Covid-19 than its peers. Covid-19 pandemic has heightened the importance of having a resilient portfolio which would further boost the profile of FCT which is the only pure suburban mall REIT in Singapore,” they add.
As at 4.55pm, units in FCT are trading 8 cents higher, or 3.2% up, at $2.62.
