SINGAPORE (Apr 26): Maybank Kim Eng, DBS Group Research and OCBC Investment Research -- are maintaining Fraser Centrepoint Trust (FCT) at “buy” with target prices of $2.60, $2.60 and $2.61 respectively.
Maybank says FCT is its preferred retail REIT, thanks to its strengthening suburban-mall footprint, visible growth drivers, strong balance sheet and potential acquisition catalysts.
FCT’s 2Q also came in line with Maybank’s expectations although DPU had to be adjusted for the $376 million investment in an 18.8% stake in PGIM Asia Real Estate AsiaRetail Fund.
See: Frasers Property and FCT raise stakes in PGIM Asia retail property fund for $635 mil
In 2Q19, FCT reported a DPU of 3.14 cents, up 1.2% y-o-y and 3.9% q-o-q, led by stable occupancies and a 2% portfolio rental reversion.
“We see firm leasing at its suburban mall assets, supporting our 5+% DPU CAGR forecast,” says Maybank analyst Chua Su Tye.
FCT’s large malls are also set to outperform, says Chua. Northpoint City North Wing has continued to stabilise post-AEI while Changi City Point delivered 12% y-o-y and 24.5% y-o-y growth in revenue and NPI.
Why Frasers Centrepoint's two northern malls are doing well
Meanwhile, DBS says this would be a good time for FCT to acquire Waterway Point given the Punggol submarket’s consistent outperformance and firm organic growth outlook.
DBS is confident FCT can take on the $635 million investment in PGIM plus the sponsor’s 33% stake in Waterway Point, and still maintain optimal gearing of 35%.
Assuming a 60%/40% debt/equity funding mix for both transactions, DBS analyst Carmen Tay says FCT’s FY18-20F DPU growth could jump from 1.5% to at least 3.5% p.a. and place FCT favourably among the fastest-growing REITs.
“Buy with $2.60 target price which assumes contributions from PGIM’s AsiaRetail fund and Waterway Point, which we think could soon materialise,” says Tay.
Lastly, FCT’s 2Q19 results also met the expectations of OCBC, with gross revenue, NPI and DPU rising 2.3%, 4.8% and 1.2% y-o-y to $49.7 million, $36.4 million, and 3.14 cents, respectively.
More importantly, FCT has appointed Richard Ng, a veteran in the real estate industry with 27 years of experience, to take over as CEO from July 1.
OCBC analyst Andy Wong Teck Ching says Ng’s appointment has the right attributes would be useful given FCT’s recent stake acquisition in PGIM.
As at 3.11pm, units in FCT are up 1 cent at $2.38 giving a 5.3% FY20F dividend yield based on OCBC’s estimates.
