Date: 28 October 2024
Broker: UOB Kay Hian

2HFY24 Performance Overview

Frasers Centrepoint Trust (FCT) reported 2HFY24 results, showing resilience with a Distribution Per Unit (DPU) of 6.02 Singapore cents, which was flat year-over-year and aligned with expectations. The stable DPU reflects FCT’s defensive strategy and steady distribution growth, despite divestments and ongoing asset enhancement initiatives (AEIs).

High Portfolio Occupancy and Rental Reversions

FCT maintained a high occupancy rate of 99.7% across its retail portfolio in 4QFY24, driven by resilient consumer spending and strategic leasing practices. Positive rental reversion was observed at 7.8% in 2HFY24, with notable performance at Causeway Point (8.8% rental reversion) and Northpoint City North Wing (6.9%).

Asset Enhancement Initiatives (AEI) and Expansion

Completion of Tampines 1 AEI:
FCT completed its AEI for Tampines 1 in August 2024, securing full occupancy at both existing retail spaces and an additional 9,000 square feet of new AEI space. This upgrade attracted 68 new tenants, including unique brands like ALUXE and Sinpopo Brand, delivering an ROI exceeding 8% on the S$38 million investment.

Upcoming Hougang Mall AEI:
FCT is set to invest S$51 million in Hougang Mall’s AEI, aimed at expanding sports and community facilities by 11,000 square feet and increasing F&B space from 26% to 32% of total lettable area. This AEI is scheduled from 2Q25 to 3Q26, adding late-night and Asian dining options to meet evolving consumer preferences.

Plans for NEX AEI:
FCT intends to convert car park space at NEX into commercial GFA, adding approximately 60,000 square feet to the property. This AEI, with an estimated ROI above 7%, aims to drive incremental revenue and tenant sales, further reinforcing FCT’s growth strategy.

Financial Metrics and Stability

FCT’s financial stability remains strong, with improved aggregate leverage at 38.5% as of September 2024, down 0.6 percentage points from the previous quarter. Its average cost of debt was stable at 4.1%, and about 29% of borrowings are on floating rates, which may benefit from expected rate cuts.

Key Drivers of Organic Growth

• Growing Distributions: Distributions from investments grew by 34.5% year-over-year in 2HFY24, attributed to a full six-month contribution from an additional 24.5% stake in NEX.
• Enhanced Shopper Traffic: Shopper traffic rose 1.9% year-over-year in 4QFY24, and tenants’ sales increased by 0.6%, now 20% above pre-pandemic levels.
• Stable Occupancy Costs: Tenant occupancy costs remained healthy at 16.0% for FY24, supporting FCT’s strategy for sustainable long-term growth.

Anticipated Developments in the Woodlands Region

FCT expects long-term growth potential from the planned development of the Woodlands Regional Centre, where 14,000 residential units are projected over the next five years. This expansion includes the Sembawang North and Woodlands North Coast projects, bringing 8,000 public housing and 2,000 private residential units, as well as substantial job creation.

Valuation and Recommendation

UOB Kay Hian maintains a “Buy” rating for FCT, with a revised target price of S$2.79 based on its DDM valuation model. FCT’s FY25 distribution yield is projected at 5.3%, underpinned by defensive leasing and consistent organic growth.