The team at OCBC Investment Research (OCBC) is keeping its “buy” call on Frasers Centrepoint Trust (FCT) as it sees the REIT as being “well-positioned” for Singapore’s reopening.
The team has, however, lowered its fair value estimate to $2.67 from $2.81 previously. It has also reduced its distribution per unit (DPU) estimate for the FY2023 by 1.4% on lower margin assumptions, and upped its risk-free rate assumption from 1.9% to 2.5%
“One of investors’ key concerns on the Singapore REITs (S-REITs) sector is rising utility costs. We believe FCT is sheltered from this in the near-term due to contracts which have been locked in for the remainder of FY2022 at least,” the team writes.
“From a balance sheet perspective, FCT hedged only 54% of its debt, as at Dec 31, 2021, but we expect further action on this front and will look out for its updated hedge ratio when it reports its upcoming 1HFY2022 results,” it adds.
Beyond the rising utility costs, the OCBC team sees FCT to largely benefit from the country’s economic reopening, although the higher number of Singaporeans travelling may dampen shopper traffic to its malls.
Furthermore, activities and events can now be held in mall atriums, which is likely to provide a boost to footfall for FCT’s malls, even if revenue from atrium spaces have historically formed only 2% to 3% of the REIT’s revenue.
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Rental for the suburban retail market have also continued to improve gradually. According to CBRE Research’s latest data for the 1Q2022, suburban retail rents in Singapore have risen 0.2% q-o-q to $30.15 psf per month, making this the fourth straight quarterly increase.
In January, the REIT revealed that its portfolio tenants’ sales formed 113% of its pre-Covid average in the same month. It also stood above the pre-Covid average in November 2021 and December 2021 and 101% and 106% respectively.
Shopper traffic, on the other hand, lagged at 69%, 66% and 58% in January, November 2021 and December 2021 respectively.
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The way the team sees it, shopper traffic may improve with the higher number of employees returning to their workplaces.
FCT had previously established a strong track record of delivering positive DPUs y-o-y since its listing in July 2006 to FY2019. The track record was broken in the FY2020 due to the impact of the Covid-19 pandemic, which includes mandatory rental relief to tenants.
In FY2021, the REIT saw a rebound in its DPU back to its FY2019 levels.
According to the team, the rebound can be attributed to the REIT’s portfolio of suburban malls in Singapore, which are “relatively more defensive and resilient in nature given their dominant positions in their respective catchment areas”.
As at 3.01pm, units in FCT are trading 1 cent higher or 0.42% up at $2.40.
