Driven by strong above-market average operational metrics, Frasers Centrepoint Trust (FCT) J69U has a resilient suburban offering that continues to support a rosy report card in FY2023 to FY2024, according to DBS Group Research analysts Geraldine Wong and Derek Tan.
In their April 24 report, Wong and Tan say that 2023 is shaping up to be another banner year for acquisitions with [around] $500 million in acquisition deals year-to-date.
The analysts maintain their “buy” call with an unchanged target price of $2.60, citing the delivery of a yield-accretive acquisition with the support of sponsor Frasers Property as the next catalyst to drive the share price higher.
As it stands, FCT has stable organic growth on the back of healthy operating metrics.
Its portfolio continues to outperform that of its peers on several fronts, with tenant sales [around] 10% above pre-Covid-19 levels, and unscathed by both the return-to-office trend and broader border reopening, say Wong and Tan.
“With occupancy cost of 16.2% for FY2022, below the 16.6% - 17.0% seen pre-Covid-19, we see scope for further rental upside, backed by healthy tenant sales, with more room for reversionary rents to rise,” they say.
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FCT has also delivered an accretive deal and sizable acquisition at the beginning of 2023, which “adds a new trophy asset in FCT’s name”, fortressing its suburban king title.
“Post completion, FCT will overtake CICT to become the largest suburban shopping center owner within Singapore, with potential to grow further through the unwinding of additional stakes in NEX mall, which we believe could happen soon,” say the analysts.
The analysts see up to a [around] 1.4% accretion to distribution per unit (DPU) based on their preferred funding scenario of $200 million - $300 million in new equity to partially fund the acquisition.
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After the completion of the transaction, FCT’s portfolio asset under management (AUM) will increase from $6.2 billion to $7.2 billion.
“With the sponsor’s stake in the bag, and a 50% ownership of NEX mall, exposure to the asset will account for approximately 11% of the portfolio’s total exposure,” say the analysts. “The acquisition will help diversify FCT’s individual asset exposure, with exposure to the largest portfolio asset (Causeway Point) reduced from a 19% net lettable area (NLA) contribution to approximately 15% post the completion of the acquisition of the sponsor’s stake of Gold Ridge.”
As at 2.59pm, shares in Frasers Centrepoint Trust traded flat at $2.31.
