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Frasers Cpt Tr Last:2.25

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Frasers Cpt Tr

DBS expects S-Reits to navigate rate hikes, currency headwinds well

SINGAPORE-LISTED real estate investment trusts (S-Reits) have ample defences against sustained interest rate hikes until late 2023, DBS Group Research said on Thursday (Dec 15).

This comes as the research team expects Singapore&rsquo s economy to slow in 2023, resulting in more cautious business consumer sentiment.

&ldquo We believe Singapore&rsquo s real estate cycle will enter a more modest growth phase, but we still project most sectors to see market rents remaining on an uptrend in 2023,&rdquo said analysts Derek Tan and Dale Lai.

Their top picks are suburban retail Reits such as Frasers Centrepoint Trust : J69U +2.9%, Lendlease Global Commercial Reit : JYEU 0% and CapitaLand Integrated Commercial Trust : C38U -0.49% as well as industrial plays including CapitaLand Ascendas Reit : A17U 0%, Frasers Logistics & Commercial Trust : BUOU +1.72% and CapitaLand India Trust : CY6U 0%.

These Reits offer better distribution per unit (DPU) resiliency with the potential for surprise upside, DBS said.

Although the research team is expecting an overall net property income growth of about 5 per cent from FY2022 to FY2024, it projected a flatter DPU growth rate of 3 per cent.

Excluding hospitality S-Reits, DPU growth is estimated to drop 0.5 per cent, as higher refinancing rates and foreign exchange losses weigh on certain S-Reits. That being said, S-Reits, on a whole, will still have sufficient leeway due to their high fixed-rate debt ratios.

Currency risks are also well-mitigated for most S-Reits, as their managers have entered into forward hedges to smooth currency impact.

The most negatively impacted by currency risks is Daiwa House Logistics Trust : DHLU +1.59%, DBS noted. It said the 16 per cent depreciation in the yen against the Singapore dollar will weigh on FY2023 DPU, although the Reit&rsquo s manager has hedged most of the income at a rate higher than current spot prices.

Meanwhile, Reits such as CapitaLand India Trust have negative exposure to the rupee, and pure-play China-focused S-Reits may get hit by the year-to-date depreciation of yuan to the Singapore dollar, the research team said.

&ldquo We see a more conducive environment for S-Reits as the Federal Reserve potentially slows and ends its hikes by the first quarter of 2023,&rdquo it added.

DBS picks FCT, LReit, CLCT as proxies to a rebound in China tourist spending

ALL eyes are on China as recent signs of Covid-19 easing have ignited hopes of borders reopening sometime in 2023, giving the retail sector in 2023 a &ldquo much needed boost&rdquo , said DBS on Friday (Dec 9).

This comes as the rising costs of living and mortgages continues to add pressure, biting into consumers&rsquo wallets in a more meaningful way, said analysts.

&ldquo We reckon consumers may look to tighten their wallets, prioritising spending on necessities over discretionary goods, like opting to cook at home more often than dining out.&rdquo

However, this could change when China finally reopens its borders, as historical data showed that Chinese travellers typically allocate a bigger proportion of their travel budget on shopping and food and beverage (F& B).

Based on 2019 figures, DBS analysts found that Chinese tourists accounted for about 28 per cent tourist receipts on shopping and F& B, as compared with 20 per cent contributed by inbound tourist arrivals overall.

The research house hence recommended investors to look towards retail players such as Frasers Centrepoint Trust (FCT) : J69U -0.49%, for necessity suburban spending Lendlease Global Comm Real Estate Investment Trust (LReit) : JYEU +2.13% for its Orchard exposure and CapitaLand China Trust : AU8U -0.87% as a direct China proxy.

Analysts noted that suburban and Orchard landlords have posted a spectacular recovery year to date as they continue to post robust tenant sales performance.

FCT, for example, saw sales average at roughly 110 per cent of normalised levels this year. SPH Reit&rsquo s Paragon mall reported FY2022 tenant sales at 89 per cent of normalised levels, while tenant sales at LReit&rsquo s 313@Somerset mall exceeded pre-Covid levels for the third quarter of its calendar year.

&ldquo We believe that the floodgates for retail spend will see a second wave with China&rsquo s reopening,&rdquo said DBS analysts in their report, given that Chinese tourists make up the largest market share in our inbound tourist arrivals.

They also spend about 55 per cent of their total travel budget on food and shopping, significantly more than Indonesian and Indian counterparts, who typically allocated 38 per cent and 29 per cent on these segments, according to DBS.

This puts Orchard and central malls as key recovery beneficiaries, while suburban malls could get a lift as necessity spending remains a big theme next year, said analysts.

The research house a &ldquo buy&rdquo call on all three Singapore-listed real estate investment trusts they recommended. FCT has a target price of S$2.60, LReit with a target of S$1, while CapitaLand China Trust has a target of S$1.45.

Don' t need to think sell and buy back later
Just hold, buy if drop further, my opinion
As shared a few times across different REIT threads, my view is as leases are renewed or new leases signed, the leases are likely to go up
Increase in rent will slowly cover back the increase in interest expense due to rising interest rates
DPU will slowly go back up again as time passes, so will the dividends
If want to play buy and sell for profit, much better to play other stocks like SGX, ST Engineering, YZJ Shipbuilding or First Resources etc
For REITs, people usually just buy and hold for decades and passively collect dividends

JAD_Trader ( Date: 17-Nov-2022 21:05) Posted:

Sell if just a small loss now and buy back later?

I think only God or Shen Xian will have an answer for this kind of question.
In stocks forums, there are many people who talk or act like prophets, fortune tellers, mediums and shamans, but are indeed Ma Hou Pao (Back Horse Gun).

JAD_Trader ( Date: 17-Nov-2022 21:05) Posted:

Sell if just a small loss now and buy back later?

S-Reits&rsquo Q3 results a preview of the potential horror show at the next earnings season

JUDGING by the latest results announcements for the third quarter, things are going to get a lot worse for Singapore-listed real estate investment trusts (S-Reits) before they get better.

Higher financing costs due to interest rate hikes led to more than a third &ndash or nine out of 24 of those S-Reits that reported substantial quarterly data &ndash reporting a decline in distributable income to unitholders for the latest period.

For the offshore real estate investment trusts (Reits) and those with sizeable portions of their portfolios based overseas, this was exacerbated by foreign exchange woes. Several major currencies &ndash including the Australian dollar, British pound, Chinese yuan and Japanese yen &ndash have weakened against the Singapore dollar over the recent quarter.

Most of the S-Reits had previously disclosed sensitivity guides on the potential impact of rising interest rates on distribution per unit (DPU). But to witness the actual impact on DPU &ndash especially on some of the bigger Reits with better capital management &ndash was disconcerting.

Frasers Centrepoint Trust : J69U +0.5% (FCT), for example, posted a 2.8 per cent decline in distributable income for the second half, despite a 7.9 per cent increase in gross revenue and 6 per cent growth in net property income (NPI).

The Reit manager attributed the reduced overall distribution income largely to rising interest rates, with the Reit&rsquo s average all-in cost of debt rising 10 basis points (bps) quarter on quarter to 2.5 per cent as at Sep 30.

FCT&rsquo s finance costs jumped 21.6 per cent to S$26.5 million for the six-month period, with a S$5 million increase in interest expense.

With some 21.5 per cent of FCT&rsquo s total borrowings of S$1.82 billion maturing by end-September 2023, its average all-in cost of debt is guided to rise further by at least 50 basis points to hit above 3 per cent in FY2023.

This comes as the Federal Reserve in November hiked interest rates by 75 bps for the fourth consecutive time in a bid to fight rising inflation rates &ndash marking its sixth rate hike this year.

FCT is by no means the only S-Reit to be hit by rising interest rates, nor is it the worst hit. It was merely one of only a handful of S-Reits that had reported full or half-year results in the most recent reporting period, and had therefore disclosed a full set of financial numbers.

The majority of the S-Reits were only required to provide quarterly operational updates for Q3.

Only 24 of the 40 actively traded S-Reits disclosed their distributable income information at this latest earnings season. This number included some that did not have to divulge this information, but commendably did so anyway.

This means that S-Reit investors may be in for some pain in the next reporting quarter.

Some of those Reits volunteered more information because of good corporate governance practices. Others may have been more detailed in their disclosures because they were happy with certain numbers.

The latest disclosures may, therefore, have painted a relatively rosy picture of how S-Reits have been impacted by rising interest rates.

Coupled with the fact that the full impact of the interest rate hikes has not yet been included into the S-Reits&rsquo cost of debt, and that interest rates are likely to keep rising, things could get downright ugly when the rest of the S-Reits release their results for the full year ending December at the next earnings season.

I think most likely Link reit will get Mercatus portfolio given that it needs to diversify out of HK and it also has very low gearing.

Joelton ( Date: 21-Sep-2022 10:10) Posted:

FCT could emerge as ' dark horse' among Mercatus portfolio bidders now that portfolio size could be halved

Frasers Centrepoint Trust (FCT) may be back in the running among the Singapore REITs (S-REITs) bidding for the Mercatus portfolio now that the portfolio may exclude AMK Hub and, or Nex, say DBS Group Research analysts Rachel Tan, Geraldine Wong, Percy Leung, Derek Tan and Jeff Yau.

The portfolio could be reduced to $3.3 billion if AMK Hub is excluded it could be further reduced to $2.3 billion if both AMK Hub and Nex are excluded.

&ldquo We believe the portfolio excluding AMK Hub will still be attractive. However, if Nex is also excluded from the equation, the portfolio may still be attractive to some bidders but less efficient to some potential buyers, in our view,&rdquo the team says.

In their previous report in August, the analysts previously noted that while the portfolio&rsquo s suburban exposure was seen as the best fit for FCT&rsquo s portfolio, the size of the deal may be a &ldquo stumbling block&rdquo with its sponsor.

Now that the Mercatus portfolio could be halved in size, the analysts feel that FCT could emerge as the &ldquo dark horse&rdquo among the bidders.

&ldquo Firstly, the asset size would be more agreeable financially for FCT with the help of its sponsor,&rdquo the team writes.

&ldquo Secondly, FCT had earlier been interested to acquire Jurong Point but was outbid by Mercatus. Thirdly, its sponsor recently raised $500 million of green notes and with the Frasers Hospitality Trust (FHT) privatization falling through, we believe the sponsor might now have the firepower to consider the Mercatus portfolio,&rdquo it adds.

To be sure, the initial portfolio was large for FCT to begin with.

In their report, the analysts note that FCT had previously competed for Jurong Point when it was last put up for sale in 2017. However, FCT was outbid by Mercatus for an acquisition price of $2.2 billion ($3,343 per sq ft 4.2% yield).

As at FY2021, Jurong Point is valued at $2.1 billion ($2,927 per sq ft 4.2% yield).

&ldquo If the portfolio has only Jurong Point and Thomson Plaza remaining, we believe it will still be attractive to FCT if the price is &lsquo right&rsquo for FCT,&rdquo says the team.

On CapitaLand Integrated Commercial Trust (CICT), one of the portfolio&rsquo s contenders, the DBS team sees the reduced portfolio as being &ldquo still attractive&rdquo to the REIT.

&ldquo We believe that both permutations would be attractive to CICT given that CICT has a strong existing retail platform in Singapore,&rdquo writes the team.

&ldquo The addition of two or more assets to the portfolio builds scale and possibly synergies or efficiencies to further raise the yields on the assets. Nevertheless, a smaller portfolio will likely be more palatable for CICT as it will put less stress on its balance sheet,&rdquo it adds.

Another contender, Hong Kong-listed Link REIT, may prefer a larger portfolio instead, with the exclusion of both AMK Hub and Nex being &ldquo less attractive&rdquo for Asia&rsquo s largest REIT.

&ldquo With only two assets in Singapore, we believe Link REIT may be disadvantaged by its smaller scale as it does not have an existing retail platform in Singapore,&rdquo the team says.

Analysts positive on FCT amid improving portfolio performance

Analysts are generally positive on Frasers Centrepoint Trust (FCT) following its results for the FY2022 ended Sept 30.

DBS Group Research analysts Geraldine Wong and Derek Tan have kept their &ldquo buy&rdquo call on FCT in lieu of resilient offerings that continue to support a &ldquo rosy report card&rdquo , driven by strong above-market average operational metrics.

The analysts say that FCT&rsquo s full year gross revenue of $356.93 million up 4.6% y-o-y was in line with their estimate of $358.5 million.

Net property income (NPI) for the full year was $258.60 million, up 4.9% y-o-y and distributable income was at $208.19 million, up 1.7% y-o-y. &ldquo Full year NPI of approximately 72% was comparable on a y-o-y basis, factoring in higher marketing expenses and higher property tax and maintenance expenses this year,&rdquo say Wong and Tan.

Correspondingly, FCT&rsquo s FY2022 distribution per unit (DPU) of 12.227 cents up 1.2% y-o-y was below, post income retention of $1.7 million in 2HFY2022.

Additionally, Wong and Tan observe that FCT continues to report strong tenant sales, where on a full-year basis, portfolio tenant sales rose 11.3% y-o-y, while shopper traffic rose 12.4% y-o-y, outperforming peers on several fronts.

For 9MFY2022, tenant sales averaged at about 110% of pre-Covid-19 levels, with shopper traffic currently hovering at approximately 80% of pre-Covid-19 levels.

Portfolio committed occupancy rose 0.40 percentage points (ppt) q-o-q to 97.5% as well, with a tenant retention rate of 82%.

&ldquo With occupancy costs of 16.2% for FY2022 below pre-Covid-19 levels of 16.6%-17.0%, we see further rental upside to be unlocked in the coming years, with more room for reversionary rents to rise,&rdquo says the analysts.

At the same time, FCT&rsquo s ancillary income, which typically contributes approximately 3% to the topline revenue, was below pre-Covid-19 levels. &ldquo Only three to four months&rsquo worth of atrium sales income was shown in FY2022 financial numbers, and we expect to see a full year contribution of atrium rental income in FY2023,&rdquo Wong and Tan add.

However, the analysts have lowered their target price to $2.60 from $2.90 previously as they roll forward their valuations into FY2023 while pricing in higher interest rate assumptions in FY2023 and FY2024.

&ldquo Our discounted cash flow valuation factors in a 3.5% risk free rate, 0.70 beta, 6.2% weighted average cost of capital (WACC), and 2.5% terminal growth to derive a new target price of S$2.60. We have not factored in acquisition assumptions in our model,&rdquo they write.

CGS-CIMB Research analysts Lock Mun Yee and Natalie Ong have kept an &ldquo add&rdquo rating on FCT with a lowered target price of $2.48 from $2.75 due to higher risk-free/cost of equity (COE) assumptions.

At this stage, FCT&rsquo s continues to recover steadily, where FY2022 reversions came in at 1.5% higher, the analysts point out.

Five out of FCT&rsquo s nine malls currently display an occupancy of above 99%. Lock and Ong note that three of its assets continue to lag in recovery however, Changi City Point continues to be impacted by reduced footfall in the Expo/Changi business park area, while backfilling is in progress at Century Square and Central Plaza, following the exit of mini-anchor tenants.

&ldquo Going forward, we expect NPI margins to remain healthy albeit marginally lower y-o-y as built-in rental escalations and full-year operations of atrium space, which typically contributes approximately 3% to revenue, should mitigate higher utility costs,&rdquo Ong and Lock write.

The analysts also note that all-in cost of debt increased marginally from 2.2% in FY2021 to 2.5% in FY2022, while interest rate hedge improved from 56% to 71%.

&ldquo Leverage dipped q-o-q from 33.9% to 33.0% but is expected to increase to c.35% post-acquisition of the additional 10% stake in Waterway Point in mid-1QFY2023,&rdquo they add.

Management articulated its disciplined approach towards portfolio reconstitution in light of the volatile macroeconomic environment and will evaluate acquisitions and divestments on a case-by-case basis.

&ldquo We introduce our FY2025 and tweak our FY2023 and FY2024 DPU by -2.1% and 1.3% respectively as we pencil in the acquisition of the additional 10% stake in Waterway Point, assuming a loan-to-value ratio (LTV) of 100% and mid-1QFY2023 completion for the acquisition, as well as peaking interest cost and utility expenses in FY2023,&rdquo say Lock and Ong.

So capitaland CICT out of tender liao,

I actually think who gets it also headache, because rising rate enviroment who wana raise so much capital ?

amk hub good location also left out liao, Ntuc keep for themselves.

What ya guys think ??

Sgvale ( Date: 26-Oct-2022 20:46) Posted:

If it got it. It will be like another SATS.