Date of Report
October 28, 2024

Broker Name
UOB Kay Hian Private Limited

Overview of Frasers Centrepoint Trust (FCT)

Frasers Centrepoint Trust (FCT) is one of the largest owners of suburban retail malls in Singapore, with a portfolio valued at approximately S$7 billion. The trust owns ten suburban malls and one office building, strategically located in densely populated residential areas with easy access to public transportation, including MRT stations and bus interchanges.

Stock Information

• Ticker: FCT SP
• Current Share Price: S$2.25
• Target Price: S$2.79
• Market Capitalization: S$4.08 billion (S$) or US$3.09 billion
• 52-Week Price Range: S$2.01 – S$2.42
• Major Shareholder: Frasers Property Ltd (39.4%)
• FY25 NAV per Share: S$2.30
• FY25 Net Debt per Share: S$1.20

2HFY24 Financial Performance

• Gross Revenue: S$179.5 million, a 2.5% decline year-over-year due to the divestment of Changi City Point in October 2023 and disruptions from asset enhancement initiatives (AEI) at Tampines 1.
• Net Property Income (NPI): S$128.8 million, down by 0.6% year-over-year.
• Distributable Income: S$109.4 million, an increase of 6.2% due to a decrease in interest expenses.
• Distribution per Unit (DPU): 6.02 S cents, consistent with the previous year.

Strategic Growth and Acquisitions

FCT reported an organic growth strategy, reflected in its positive rental reversion across all suburban malls. Key highlights include:

• Positive Rental Reversion: A rental increase of 7.7% for FY24, with standout performance at Causeway Point (8.8%) and Northpoint City North Wing (6.9%).
• High Occupancy Rates: The portfolio occupancy rate remains stable at 99.7% for retail malls, with Causeway Point and Northpoint City North Wing achieving close to or full occupancy.

Asset Enhancement Initiatives (AEIs)

FCT completed the AEI for Tampines 1 in August 2024, achieving full occupancy at 100% across its retail spaces and adding 9,000 square feet of AEI space.

• Tampines 1 AEI: The initiative attracted 68 new tenants, including notable names like ALUXE, Hawkers’ Street, and Sushi Plus, generating a return on investment (ROI) above 8% for a capex of S$38 million.
• Hougang Mall AEI: Scheduled for an investment of S$51 million, the AEI will add 11,000 square feet of community and sports facilities, and 13,000 square feet of additional F&B space. Completion is expected between 2Q25 and 3Q26.
• NEX Expansion Plans: FCT aims to repurpose existing car park space to create an additional 60,000 square feet of commercial space. This expansion, projected to generate an ROI of over 7%, awaits regulatory approval.

Occupancy Costs and Shopper Traffic

• Shopper Traffic Growth: Increased by 1.9% year-over-year in 4QFY24.
• Tenant Sales: Sales have risen by 0.6% year-over-year, now 20% above pre-pandemic levels.
• Occupancy Cost: A stable and healthy occupancy cost of 16.0% in FY24.

Financial Stability and Debt Management

FCT reported an improved aggregate leverage, reducing by 0.6 percentage points quarter-over-quarter to 38.5% as of September 2024. The trust’s average cost of debt remained stable at 4.1% in 4QFY24, with around 29% of borrowings tied to floating interest rates, which could benefit from anticipated interest rate cuts.

Future Growth Drivers

• RTS Link and Regional Development Impact on Causeway Point: The completion of the RTS Link by 2026 and the expansion of the Woodlands Regional Centre could benefit Causeway Point by increasing local shopper traffic.
• Woodlands Regional Centre Development: Plans include 14,000 new residential units and infrastructure that could create approximately 100,000 new jobs, increasing the local population within Causeway Point’s catchment area.

Distribution Yield and Valuation

The trust maintains a projected FY25 distribution yield of 5.3%, with a “BUY” recommendation upheld by UOB Kay Hian. The target price of S$2.79 is derived using the Dividend Discount Model (DDM), assuming a cost of equity of 6.75% and a terminal growth rate of 2.5%.