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Frasers Cpt Tr Last:2.26 -

Frasers Cpt Tr

https://www.straitstimes.com/business/frasers-centrepoint-trust-to-sell-changi-city-point-for-338-million

Did you know that there are more than 10 Retail REITs listed in Singapore?
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FCT reports portfolio occupancy of 98.7% for 3QFY2023

Frasers Centrepoint Trust (FCT) has reported that its portfolio occupancy for 3QFY2023 is at 98.7%, 1.6 percentage points (ppts) higher y-o-y. Its weighted average lease expiry (WALE) stood at 1.95 years by net lettable area (NLA) or 1.86 years by gross rental income (GRI).

Shopper traffic increased 16% y-o-y, averaging around 90% of pre-Covid-19 levels, while tenant sales in the same period increased 5% y-o-y, about 16% above pre-Covid-19 levels.

FCT&rsquo s aggregate leverage as of June 30 is 40.2%, an increase from 39.6% in the previous quarter. Green loans account for about 49.8% of its total borrowings.

The year-to-date cost of borrowing all-in is at 3.7%, due to higher interest rates. Meanwhile, the average debt maturity has been extended to 2.53 years from 1.91 years in the previous quarter.

FCT is the first in Singapore to collaborate with Oversea-Chinese Banking Corporation (OCBC) on its green loan offering with carbon credits, which will see the decarbonisation of Tampines 1 mall.

This is in line with Frasers Property&rsquo s goal to be a net-zero carbon company by 2050, across scope one, two and three emissions.

Meanwhile, the group says that the works for its asset enhancement initiatives (AEIs) in Tampines 1 commenced in 2QFY2023 and are on schedule for completion in 3QFY2024. More than 90% of AEI spaces have been pre-committed to date.

Frasers Centrepoint Trust&rsquo s committed retail portfolio occupancy at 98.7% in Q3

FRASERS Centrepoint Trust&rsquo s committed occupancy for its retail portfolio rose 1.6 percentage point to 98.7 per cent year on year in the third quarter ended Jun 30, on the back of firm leasing demand.

Shopper traffic and tenants&rsquo sales both increased within the same period, with tenants&rsquo sales averaging 16 per cent above pre-Covid-19 levels, the trust&rsquo s manager said on Tuesday (Jul 25).

The trust is poised to benefit from the positive market environment, as prime retail rents rose islandwide in the April-to-June quarter, supported by the continued recovery of Orchard Road malls and the resilience of the suburban market.

CBRE Research noted that suburban prime rents rose 3.1 per cent, and that Orchard Road prime rents were up 2.9 per cent year on year.

While occupancy remains above 99 per cent for malls such as Causeway Point, Waterway Point, Tiong Bahru Plaza and Hougang Mall, Changi City Point registered a 6.4 percentage point decline in occupancy, pending documentation of negotiated leases.

The trust manager said it will continue curating and refreshing retail offerings by bringing in popular brands and new-to-Singapore concepts. For instance, it brought in China&rsquo s largest coffee chain, Luckin Coffee, as a tenant in Tampines 1.

Frasers Centrepoint Trust&rsquo s weighted average lease expiry as at Jun 30 was 1.95 years by net leasable area, and 1.86 years by gross rental income.

Giving an update on asset enhancement works at Tampines 1, the trust manager said works are progressing on schedule, and will be completed in Q3 2024. The mall continues to operate in the meantime.

As at end-June, Frasers Centrepoint Trust&rsquo s gearing levels stood at 40.2 per cent, up from 39.6 per cent as at end-March. Average debt maturity has been extended to 2.53 years from 1.91 years.

It said that all remaining significant lease expiries are in advanced negotiations for renewal or new leasing.

The trust&rsquo s manager said it will continue to drive tenants&rsquo sales and improve tenant mix and focus on asset-enhancement initiatives to improve yield and create value.

Frasers Centrepoint Trust obtains S$419 million green loan with carbon credits from OCBC

FRASERS Centrepoint Trust : J69U 0% (FCT) has bagged a S$419 million green loan from OCBC : O39 -1.06% with carbon credits as part of the deal.

On Thursday (Jul 6), both the real estate investment trust&rsquo s (Reit) manager and bank said this is Singapore&rsquo s first green financing solution that comprises a green loan and carbon credits.

Proceeds from the loan will be used for decarbonisation projects that include procuring energy-efficient technology for Tampines 1, which is in the midst of a S$38 million asset enhancement initiative (AEI).

FCT and OCBC said this would enable the seven-storey mall to progress towards carbon-neutral status, as the mall&rsquo s plans to further reduce carbon emissions include the installation of solar panels on its roof in Q4 2023.

Sustainability initiatives in 2024 will focus on enhancing efficiency throughout the mall through Air-Conditioning and Mechanical Ventilation airside optimisation.

Other uses for the loan proceeds include refinancing the trust&rsquo s maturing facility, as well as for its AEIs.

FCT will invest the carbon credits, which are sourced through OCBC&rsquo s emissions trading desk, in Verra or Gold standard-certified carbon reduction nature-based projects.

The trust aims to reduce carbon in an amount which is on a par with financed emissions associated with the green loan.

It also intends to purchase additional carbon credits to account for Scopes 1, 2 and 3 emissions of Tampines 1&rsquo s carbon footprint.

While Scope 1 and Scope 2 emissions are &ldquo residual and unavoidable&rdquo , Scope 3 emissions of the mall will encompass all energy-related emissions for landlord and tenant controlled-area consumption.

&ldquo This new financing solution will pave the way for us to support green buildings, while directing more capital towards carbon credit generating projects,&rdquo said Elaine Lam, head of global corporate banking at OCBC.

&ldquo Through working with FCT and its sponsor Frasers Property Group, we have also achieved a deeper understanding of the sustainability ambitions and needs of our real estate clients, which will allow us to support them better in future.&rdquo

Maybank upgrades FCT to &lsquo buy&rsquo on attractive valuation, resilient retail sales

MAYBANK Securities has upgraded Frasers Centrepoint Trust : J69U +0.46% (FCT) to &ldquo buy&rdquo from &ldquo hold&rdquo , noting the real estate investment trust&rsquo s (Reit) attractive valuation and resilient retail sales.

In a report released on Tuesday (Jul 4), the research team also highlighted the Reit&rsquo s quality portfolio and the potential rotation of investors&rsquo focus on suburban malls as reasons for its upgrade.

Maybank noted that FCT&rsquo s unit price has fallen 5 per cent since its downgrade on Apr 27, 2023. It is currently trading at 0.93 times its price-to-book ratio, with a yield of around 5.6 per cent.

&ldquo We think this is attractive, given the high-quality portfolio of retail malls located next to transport nodes and dense population catchments,&rdquo said analyst Krishna Guha.

The upgrade also took into consideration a 13 per cent return on the Reit&rsquo s unit price, its H1 financial performance and assumes a lower borrowing cost for FY2024, Guha noted.

Maybank has maintained its target price of S$2.35 on FCT, based on a dividend discount-model which factors in a risk-free rate of 6.6 per cent and a medium-term growth rate of 2 per cent.

FCT units were trading at S$2.18 as at 1.55 pm on Tuesday, up 0.5 per cent or S$0.01.

Maybank has also lowered its estimates for FY2023 distribution per unit (DPU) by 0.8 per cent, but raised its DPU estimates for FY2024 by 0.2 per cent.

The lower revenue, which is based on the Reit&rsquo s H1 performance, takes into account the more subdued growth in spot rents of 4 per cent, versus the previous 5 per cent for FY2023 and FY2024. However, impact from spot rents will be offset in FY2024 due to lower borrowing costs.

With the current low unemployment rate and &ldquo necessary shopping&rdquo , Guha also expects a stable operating metrics and distribution profile for the Reit.

FCT has benefited from the healthy retail sales, with monthly tenant sales being 14 per cent higher than the pre-Covid level in H1 2023. Maybank expects this segment to remain resilient, given the low unemployment rate, tight domestic labour market and supportive government policies.

The Reit&rsquo s acquisition of a half stake in Nex mall, together with its sponsor, has also placed FCT as the largest suburban retail mall owner in Singapore.

Guha noted that this gives the Reit economies of scale, lower servicing costs and enhanced bargaining powers with larger retailers.

In January 2023, FCT teamed up with Frasers Property to buy a 50 per cent stake in Nex for S$652.5 million. The move came months after FCT raised its stake in Waterway Point to 50 per cent from 40 per cent in September 2022.

Maybank expects these acquisitions to &ldquo boost distributions especially as they come in an environment of a rebounding retail sector&rdquo .

With the recovery in tourism likely to be protracted, Maybank also anticipates investors may &ldquo favour domestic focused names like FCT, especially after hospitality Reits outperformed in Q2&rdquo .

Analysts mixed on Frasers Centrepoint Trust after 1HFY2023 results

Analysts are mixed on Frasers Centrepoint Trust (FCT) J69U 0.00% following the REIT&rsquo s announcement of its results for 1HFY2023 ending in September 2023.

The REIT&rsquo s distribution per unit (DPU) was mildly lower by 0.1% year-on-year (y-o-y) to 6.13 Singapore cents, but analysts from OCBC Investment Research (OIR), UOB Kay Hian (UOBKH) and DBS Group Research (DBS) see potential in the REIT after its retail portfolio occupancy hit a high of 99.2%. Meanwhile, RHB Bank Singapore notes that its operational gains may be weighed down by interest costs.

OIR&rsquo s research team has kept its &ldquo buy&rdquo call at a target price of $2.41, an increase from $2.28 previously as it sees a &ldquo solid uplift in operating metrics' ' for FCT. The team says that the REIT&rsquo s 1HFY2023 results were in-line with their expectations.

&ldquo Adjusting for income that was retained or released, we estimate that FCT&rsquo s adjusted DPU would have come in at 6.025 cents, or a decline of 3.3%. The $3 million of income that was retained in 1HFY2023 will be distributed to unitholders in 2HFY2023,&rdquo writes the OIR team.

The OIR team adds that FCT&rsquo s portfolio of suburban malls are relatively defensive and resilient in nature, and they expect FCT to benefit from Singapore&rsquo s reopening

FCT&rsquo s retail portfolio committed occupancy rate increased by 0.8 percentage points (ppt) q-o-q to 99.2%, with a strong boost from Century Square (+8.1% ppt q-o-q to 96.8%) due to the signing of a new cinema operator Cathay Cineplexes, although its opening will only happen in October 2023.

Its rental reversions were also positive at 1.9%, or up 4.3% based on average incoming rents versus average outgoing rents. FCT&rsquo s retail portfolio tenants&rsquo sales and shopper traffic grew 9.2% and 35.3% y-o-t, respectively, in 1HFY2023.

&ldquo The increase in tenants&rsquo sales, coupled with positive rental reversions, helped to drive down FCT&rsquo s occupancy costs to below 16% (FY2022: 16.2%),&rdquo say the analysts.

However, the OIR team notes that FCT&rsquo s average leverage ratio increased from 33.9% as at Dec 31, 2022, to 39.6% with $76.4 of its borrowings hedged due to drawdown of loans for acquisitions.

This was mainly due to the drawdown of borrowings for the acquisitions of an additional 10% interest in Waterway Point and 25.5% effective interest in the vehicle holding NEX.

In addition, the spike in borrowing costs and FCT&rsquo s relatively large debt maturities from FY2023 to FY2025 would likely exert downward pressure on its DPU.

&ldquo We increase our FY2023 and FY2024 DPU forecasts by 0.8% and 0.1%, respectively, and lower our risk-free rate assumption from 3.50% to 3.15%. Consequently, our fair value estimate is increased from $2.28 to $2.41,&rdquo adds the OIR team.

UOBKH&rsquo s analyst Jonathan Koh has also maintained his &ldquo buy&rdquo call with a target price of $2.52, citing healthy growth in domestic consumption resulting in the increase in shopper traffic and tenant sales for FCT&rsquo s portfolios.

As Singapore transitions to the Covid-19 endemic phase, Koh sees that FCT&rsquo s suburban malls benefit as consumers prioritise their spending on essential goods and services.

&ldquo Shopper traffic increased 35.3% y-o-y, while tenants&rsquo sales grew 9.2% y-o-y in 1HFY2023. FCT&rsquo s tenant sales were 9% above pre-pandemic levels as of Mar 23. According to CBRE, prime retail rents for suburban malls have increased 2.8% y-o-y to $31.00 per sq ft per month in 1Q2023.&rdquo says Koh.

In addition, FCT plans to invest $38 million to enhance Tampines 1 with additional net lettable area (NLA) of 8,000 sq ft from various bonus gross floor area (GFA) schemes.

&ldquo Leasing has gained strong traction with more than 90% of the additional NLA already precommitted. The asset enhancement initiatives (AEI) is scheduled to complete in 3Q2024. It is estimated to provide an ROI of 8% by generating higher rents, and is expected to complete in 3Q2024.&rdquo says Koh.

Similarly, DBS analysts Geraldine Wong and Derek Tan have maintained their &ldquo buy&rdquo call with a target price of $2.60, also noting that the delivery of a yield-accretive acquisition with the support of sponsor Frasers Property is the next catalyst to drive the share price higher.

Wong and Derek note that FCT&rsquo s portfolio continues to outperform that of its peers on several fronts, with tenant sales [around] 10% above pre-Covid-19 levels.

Following the completion of the debt-funded acquisition, FCT will overtake CICT to become the largest suburban shopping centre owner within Singapore with the potential to grow further through the unwinding of additional stakes in NEX mall, say the analysts.

However, RHB&rsquo s analyst Vijay Natarajan has kept a &ldquo neutral&rdquo call on FCT, with an unchanged target price of $2.10. Natarajan cites FCT&rsquo s 35% of debt rolling over in the next 18 months, and says that interest cost pressures are likely to persist.

The analyst notes a &ldquo flattish 1H DPU&rdquo as revenue growth of 7% y-o-y and higher joint venture (JV) & associate contributions from acquisitions were offset by a 75% y-o-y rise in finance costs.

&ldquo All in, interest costs rose 140 basis points (bps) y-o-y and 10 bps in the coming quarters post refinancing. About 76% of its debt is hedged with an adjusted interest coverage ratio (ICR) of 4.4 times,&rdquo says Natarajan.

Analysts mixed or no mixed, share price goes up. That is important.

Joelton ( Date: 31-Jan-2023 09:01) Posted:

Analysts mixed on FCT' s acquisition of 25.5% stake in Nex

Analysts are mixed on Frasers Centrepoint Trust&rsquo s (FCT) acquisition of a 25.5% stake in Nex, with Citi Research and RHB Group Research remaining &ldquo neutral&rdquo on the counter. OCBC Investment Research is also keeping its &ldquo hold&rdquo call.

Other brokerages like DBS Group Research and CGS-CIMB Research are more positive, keeping their &ldquo buy&rdquo and &ldquo add&rdquo calls following the acquisition.

On Jan 26, Mercatus Co-operative announced that it divested its 50% indirect stake in the suburban mall to a 51/49 joint venture (JV) by FCT and its sponsor, Frasers Property. The divestment was made for a consideration of $652.5 million.

Despite his &ldquo neutral&rdquo call, Citi analyst Brandon Lee called the acquisition a &ldquo pleasant surprise&rdquo as he thought that any potential sale would occur in the &ldquo medium-to-long term&rdquo instead.

&ldquo Although the transaction is neither big nor small ([at around] 9% of FCT&rsquo s AUM) and DPU-accretion is benign, we think buying a 25.5% stake is the only way FCT can generate DPU-accretion without raising expensive equity and keep gearing [under] 40%, with the remaining 24.5% stake adding to its existing sponsor pipeline of Northpoint City South Wing,&rdquo he writes in his Jan 26 report.

AUM stands for assets under management while DPU stands for distribution per unit.

He adds: &ldquo the earlier divestment of three aged assets at 1.9%-3.8% and redeploying into higher-yielding Nex (and 10% stake in Waterway Point earlier at 4.5%) also points to FCT&rsquo s good portfolio reconstitution strategy&rdquo .

&ldquo Overall, we view the transaction as neutral given mild DPU-accretion and higher gearing limiting future acquisitions,&rdquo he continues.

Lee has kept his target price at $2.13. The analyst values FCT&rsquo s properties at a weighted average cap rate of 4.7% for its revised net asset value (RNAV).

See also: UOB to ' lead the pack' when Singapore banks report 4QFY2022 results in February: CGS-CIMB

In a separate report issued on the same day, Lee noted that FCT&rsquo s rising debt cost is &ldquo something to watch&rdquo . The REIT&rsquo s business updates for the 1QFY2023 revealed that its debt cost stood at 3.5%, slightly higher than the analyst&rsquo s FY2023 estimate of 3.44%. The REIT&rsquo s gearing also rose by 0.9 percentage points q-o-q to 33.9% even though its gearing is still one of the lowest among the Singapore REITs (S-REITs) among Citi&rsquo s coverage.

While the REIT&rsquo s newly-announced asset enhancement initiative (AEI) at Tampines 1 is a testament to the manager&rsquo s proactive plans to improve the mall&rsquo s operational performance in the medium-term, Citi&rsquo s Lee remained &ldquo neutral&rdquo on valuations. He adds that he sees better value in its peer, Lendlease Global Commercial REIT (LREIT).

RHB Group Research analyst Vijay Natarajan has upped his target price estimate to $2.10 from $2.09. Like his peer at Citi, Natarajan thought that the deal was a &ldquo pleasant surprise&rdquo albeit at a &ldquo tight pricing&rdquo .

&ldquo Overall, we are neutral on the deal &ndash while we like the long-term strategic fit and synergies, tight pricing and high funding costs limits yield accretion,&rdquo says the analyst in his Jan 30 report. &ldquo Operating metrics continue to trend higher, but FCT&rsquo s short debt maturity and low debt hedge versus that of comparable peers will negate most of the gains moving forward.&rdquo

With a post-acquisition gearing of 38.5%, the analyst foresees that the REIT may explore potential divestment opportunities and also possible equity-raising at the right opportunity to shore up its balance sheet.

For the REIT&rsquo s 1QFY2023 business update, Natarajan notes its improving operating metrics, which were otherwise negated by a sharp rise in interest costs.

The analyst has lifted his DPU estimates for the FY2023 to FY2025 after factoring in the acquisition and funding costs.

&ldquo FCT&rsquo s environmental, social and governance (ESG) score of 3.2 out of 4.0 is two notches above the country median, so we apply a 4% premium to its intrinsic value to derive our target price,&rdquo he says.

The research team at OCBC has lowered its fair value estimate to $2.28 from $2.36 previously after FCT&rsquo s business update and acquisition news.

Like its peers, the team noted FCT&rsquo s &ldquo solid and resilient operating metrics&rdquo but stood concerned at the jump in its average cost of debt.

The team has also cut its DPU forecasts for the FY2023 and FY2024 by 4.3% and 4.5% respectively on higher borrowing cost assumptions. The team has not factored in the proposed acquisition of Nex in its model.

&ldquo Looking ahead, we expect FCT to largely benefit from Singapore&rsquo s reopening, and also like its defensive positioning given expectations of an economic slowdown and possible recession in some developed countries. However, the spike in borrowing costs and FCT&rsquo s relatively large debt maturities from FY2023 to FY2025 would likely exert downward pressure on its DPU,&rdquo writes the team on Jan 30.

Nex acquisition a plus

Meanwhile, DBS analysts Geraldine Wong and Derek Tan are positive on the Nex acquisition, seeing the REIT as &ldquo fortressing [its] Suburban King title&rdquo . In addition to their &ldquo buy&rdquo call, Wong and Tan have kept their target price at $2.60, the highest among the brokerages.

To the analysts, the capture of the 50% share of Nex came as a &ldquo pleasant surprise&rdquo , calling the deal &ldquo accretive [and a] sizeable acquisition&rdquo .

They add that the deal added a &ldquo new trophy asset to the FCT name&rdquo .

&ldquo [FCT&rsquo s] sponsor&rsquo s support to the deal continues to be a testament of support for FCT&rsquo s growth while fortressing the suburban king title. Post-completion, FCT will overtake CapitaLand Integrated Commercial Trust (CICT) to be the largest suburban shopping centre owner in Singapore, with potential to grow further through unwinding the additional stakes in Nex mall and Waterway Point,&rdquo they write.

Referring to FCT&rsquo s 1QFY2022 business update, the analysts see the REIT&rsquo s &ldquo resilient suburban offering&rdquo as continuing to support a &ldquo rosy report card, driven by strong above-market average operational metrices&rdquo .

&ldquo Delivery of a yield accretive acquisition, with sponsor Frasers Property lending support, will remove the overhang of a potential equity fund raising for the stock,&rdquo the analysts write.

They add that FCT&rsquo s portfolio continues to outperform its peers on several fronts, with tenant sales at around 10% above pre-Covid levels, and unscathed by both the return to office trend and broader border reopening.

&ldquo With occupancy cost of 16.2% for FY2022, below pre-Covid levels of 16.6% - 17.0%, we see further rental upside to be unlocked in the coming years, with room for reversionary rents to rise,&rdquo they continue.

That said, the analysts acknowledge that they are &ldquo more positive&rdquo on FCT than their peers on the prospects of retail and its long-term integration into the retail ecosystem.

CGS-CIMB analysts Lock Mun Yee and Natalie Ong are also positive on FCT&rsquo s higher retail occupancy and positive reversion as reported in its 1QFY2023 business update.

In addition, the analysts stood positive on the acquisition of Nex, saying that the stake has renewed FCT&rsquo s inorganic growth prospects. &ldquo Suburban retail malls will remain resilient, in our view,&rdquo they write in their Jan 30 report.

While the analysts have upped their target price to $2.59 from $2.48 on lower cost of equity (COE) and beta assumptions, they have also cut their DPU estimates for the FY2023 to FY2025 to factor in higher borrowing costs. They have not factored in the acquisition of the 25.5% interest in Nex pending deal completion.

&ldquo Re-rating catalysts include stronger-than-forecast reversions and acquisition of remaining stakes in Waterway Point and Nex. Downside risks include a slowdown in consumer spending, which may weaken tenant sentiment/leasing and impact FCT&rsquo s ability to command positive reversions,&rdquo they write.