Frasers Centrepoint Trust (FCT SP): Steady Performance & Growing DPU | Maybank Maintains BUY Rating 1

Maybank Research Pte Ltd April 30, 2025
Frasers Centrepoint Trust (FCT SP): Steady Performance Fuels Distribution Growth Amid Tight Yields

FCT Delivers Resilient 1H FY25 Results

Frasers Centrepoint Trust (FCT SP) reported a steady performance for the first half of its fiscal year (1H FY25), demonstrating resilience in its operations. The Distribution Per Unit (DPU) saw a slight increase, reaching SGD 6.054 cents, marking a 0.5% year-over-year (YoY) growth. This positive momentum was primarily driven by higher rental income, improved performance from the renovated Tampines 1 asset, and contributions from FCT’s additional stake in the NEX mall.
Despite facing challenges, FCT’s distributable income grew by 4.9% YoY, although the DPU growth was moderated to 0.5% due to an increased number of units in issue. The trust maintains a BUY rating with an unchanged target price of SGD 2.50, reflecting confidence in its defensive portfolio and the underlying strength of suburban retail consumption in Singapore.

Healthy Operating Trends Underpin Growth

FCT’s financial results for 1H FY25 showed healthy growth trends.

• Revenue: Reached SGD 184.4 million, up 7.1% YoY.
• Net Property Income (NPI): Grew to SGD 133.7 million, an increase of 7.3% YoY.

The top-line growth was significantly boosted by increased rental income and the strong performance of Tampines 1 following its renovation. Excluding the impact of Tampines 1, the estimated NPI growth for 1H was a more modest 1.6% YoY.
While the share of results from Joint Ventures (JV) decreased by 27.7% YoY, the actual distribution received from these JVs significantly increased. FCT received SGD 38.1 million in distributions from its JVs in 1H FY25, a substantial jump from SGD 20.8 million in 1H FY24 and SGD 28.5 million in 2H FY24. This increase, attributed to the outperformance and lower funding costs for JV assets NEX and Waterway Point (representing a 92% payout of NPI), coupled with slightly lower borrowing expenses and a smaller proportion of management fees paid in units, contributed to the 4.9% growth in total distributable income.

Key Operational Metrics:

• Occupancy: Remained high at 99.5%, slightly down from 99.7% in 2H FY24 and 99.9% in 1H FY24. Minor dips in occupancy at Causeway Point and the Tampines malls (Tampines 1 and Century Square) are considered likely frictional.
• Rental Reversion: Continued its positive trajectory, achieving +9.0% for 1H FY25, compared to +7.5% in 1H FY24 and +7.7% in 2H FY24.
• Tenant Sales: Grew by 3.3% YoY for the first half, indicating slightly positive sales growth continued into the second quarter (2Q) following the 2.5% YoY growth reported for the first quarter (1Q).
• Shopper Traffic: Showed a modest growth of 1.0% YoY for 1H FY25.

1H FY25 Financial Highlights:

Prudent Capital Management Strategies

FCT continues to manage its capital prudently.

• Gearing: Remained stable at 38.6% as of 1H FY25 (vs. 39.3% in 1Q FY25 and 38.5% in 2H FY24). Management aims to keep gearing below 40%.
• Debt Cost: Eased slightly to 3.9% from 4.0% in the previous quarter, facilitated by the repayment of more expensive debt.
• Interest Coverage Ratio (ICR): Stood at 3.28x (down slightly from 3.33x in 1Q FY25).
• Acquisition Funding: Despite the upcoming acquisition of Northpoint City South Wing, management intends to maintain gearing below 40%. This will be achieved through opportunistic issuance of perpetual securities and debt repayment, even though indicative perpetual financing costs are about 100 basis points higher than bank loan costs.
• Asset Recycling: Not considered an immediate priority.
• Asset Enhancement Initiative (AEI): The AEI at Hougang Mall is progressing as scheduled.

Investment Thesis: Maintain BUY on Defensive Strength

The financial performance of FCT is tracking Maybank’s full-year forecasts, leading to unchanged estimates, rating (BUY), and target price (SGD 2.50). While the current DPU yield is considered tight and FCT trades near its book value, several factors support the positive outlook:

• Growing population and wages in Singapore.
• Continued government support measures.
• Limited new retail supply in the market.

These elements are expected to contribute to a resilient performance for FCT’s portfolio of suburban malls.

Valuation Approach

FCT’s valuation is based on a Dividend Discount Model (DDM) using a discount rate of 6.7% and a medium-term growth rate of 2.0%. The 1H FY25 DPU represents 50.4% of the full-year estimate. While the SGD 38 million distribution from JVs significantly exceeded the forecast (annual estimate SGD 52 million) due to asset outperformance and lower funding costs, Maybank refrains from extrapolating this high payout ratio into future years given the uncertain macroeconomic environment.

Company Profile and Portfolio Strength

FCT is a real estate investment trust specializing in income-producing retail properties.

• Portfolio: Owns or has stakes in 10 suburban retail properties and one office asset (Central Plaza).
• Valuation & Size: Total portfolio valued at SGD 6.7 billion with 2.5 million sq ft of Net Lettable Area (NLA) as of September 2023.
• Location Advantage: Assets are strategically located near or next to MRT stations or bus interchanges.
• Trade Mix: Features a high proportion of essential services (F&B, services, supermarket/hypermarket), accounting for approximately 45% of NLA and 54% of gross rental income, enhancing defensiveness compared to downtown malls.
• Sponsor Pipeline: Benefits from a pipeline of potential assets worth SGD 2.2 billion from its sponsor, Frasers Property Limited (FPL SP).

Asset Breakdown by Value (Sep 2023):

• Causeway Point: 21%
• Northpoint City North Wing: 12%
• Tampines 1: 12%
• Waterway Point: 10%
• Tiong Bahru Plaza: 10%
• Century Square: 9%
• NEX: 8%
• Hougang Mall: 7%
• White Sands: 7%
• Central Plaza: 3%
• Yishun 10: 1%

Historical Price Drivers:

• Sep-20: Acquired remaining interest in PGIM ARF (SGD 1.06b), divested Bedok Point (SGD 108.1m).
• Dec-20: Announced divestment of Anchorpoint (SGD 110m).
• Mar-21: Divested Yew Tee Point (SGD 220.0m).
• Oct-23: Divested Changi City Point (SGD 338m).
• Feb-24: Joined The Straits Times Index (STI).

Financial Metrics and Projections

Maybank forecasts a 1.1% DPU Compound Annual Growth Rate (CAGR) for FY24-27E. This growth is expected to be driven by positive rental reversions, potential accretive acquisitions, and lower borrowing costs. Borrowing costs are projected to decrease from 4.3% to 3.9% in 2025.

Forecast Summary (FYE Sep):

Identified Risks

Potential risks to FCT’s performance and valuation include:

• Repricing of borrowings, especially for the JVs.
• A slowdown in retail sales impacting tenant performance.
• Potential tenant defaults.
• Execution of dilutive acquisitions or deals.

Swing Factors

Upside Potential:

• Faster-than-expected recovery in retail leasing demand driving occupancy improvements.
• Better-than-anticipated rental reversions.
• Accretive acquisitions or successful redevelopment projects.

Downside Risks:

• Prolonged economic slowdown reducing retail space demand, leading to lower occupancy and rental rates.
• Termination of long-term leases weakening portfolio tenant retention.
• Sharper-than-expected increases in interest rates elevating debt costs, negatively impacting earnings and valuations.

ESG Profile and Performance

FCT demonstrates a commitment to Environmental, Social, and Governance (ESG) factors, aligning with its sponsor’s goals.

• ESG Rating: Received a 5-Star GRESB rating in 2023 (up from 3-Stars since participating in 2019). Sustainalytics ESG Risk Rating is 11 (Low) as of Nov 2022.
• Environmental:
  • Achieved 100% GFA certification to BCA Green Mark Gold or higher; five assets rated Platinum.
  • Targets progressive reduction in energy intensity (by 2035) and water intensity (by 2030).
  • Generated 147 MWh of renewable energy (FY23) via solar panels at Tiong Bahru Plaza.
  • Increased Scope 1 emissions data coverage.
  • Green loans constitute 55.6% of total borrowings (as of Sep 2023).
  • Sustainability disclosures aligned with TCFD recommendations.
  • Group goal: Net-zero carbon (Scopes 1, 2, 3) by 2050; Green certification for 100% new developments GFA and 85% managed IPs GFA by 2030.
• Social:
  • Implemented tenant engagement plan across all properties.
  • Organized “Building a Greener Retail Ecosystem Together” event for tenants (FY23).
  • Average 26 training hours per employee in FY23.
  • All malls certified BizSAFE STAR by Workplace Safety and Health Council.
  • High female representation: 70% of all employees, 40% in senior management, 25% on the board.
• Governance:
  • Externally managed by a subsidiary of sponsor Frasers Property, providing pipeline and capital market access.
  • High board independence (4 out of 6 members, including Chairman).
  • Management fee structure comparable to peers (Base: 0.3% deposited property, Performance: 5.0% NPI, Acq/Disp: 1.0%/0.5%).
  • Key management remuneration consistently <2.0% of distributable income since FY18.
  • Payout ratio maintained above 90% (except during Covid).
  • Proven track record of accretive acquisitions and value-generating AEIs.
  • Included in FTSE EPRA/NAREIT Global Developed Index (Sep 2019) and STI (Feb 2024).

Detailed Financial Statements & Key Ratios

Income Statement (SGD m)

Balance Sheet (SGD m)

Cash Flow (SGD m)

Key Ratios

Historical Recommendations and Target Price

*(Chart displaying historical recommendations and target prices for FCT SP from Apr-22 to Apr-25 would be included here, showing various BUY/HOLD ratings and target price adjustments over time, culminating in the current BUY rating at SGD 2.50 as of Oct 2024/Jan 2025)*