SINGAPORE (May 30): DBS Vickers expects Frasers Centrepoint Limited (FCL) and its REITs to deliver consistent returns in the coming years, leveraging on the improved outlook of their key markets of Australia and Singapore.
As asset recycling has been a strategy that FCL employs to maintain high ROEs and deploy proceeds to projects with higher returns, DBS sees an attractive pipeline of properties that could be tapped across the group’s staple of listed REITs.
“Given where a majority of its REITs are trading, we see acquisition opportunities for both Frasers Centrepoint Trust (FCT) and says Frasers Logistics & Industrial Trust (FLT) in the immediate-medium term given stabilised assets on the sponsor’s balance sheet,” says analyst Derek Tan in a Tuesday report.
Supported by a solid balance sheet, Tan expects FCL to be on the lookout for further acquisitions to deepen its exposure, grow recurring income base and re-stock its land bank in Singapore.
For the REITs, Tan says FLT and Frasers Hospitality Trust (FHT) are able to deliver higher returns as demand for logistics space and hotels in Australia remains firm.
Tan also expects the worst to be over for FCT as the refurbishment for Northpoint enters its final phase and will be completed by Sept 2017. Thereafter, DBS expects FCT to deliver a 3% CAGR growth in distributions over FY17F-19F.
While uncertainties surround Frasers Commercial Trust (FCOT) regarding the renewal of HP lease in the coming months, Tan believes the negatives are priced in at 7.5% yield, which is a 150-bp spread against the larger office REITs. And as there are levers the manager can undertake to maintain DPUs and as such, he sees limited downside.
Shares of FCL, FCT, FLT, FHT and FCOT are trading at $1.81, $2.10, $1.01, 71 cents and $1.37 respectively.
