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This new acquisition is not going to deliver the growth the company needs to justify its valuation. Bad points include 1) a placement at a 5% discount, but no rights issue, 2) an acquisition price that does not deliver DPU growth. The company has to find better deals.
Miss this gems in my reits portfolio. For SG focus reits, I opted for then Mapletree Commercial Trust now MPACT instead of FCT. It was a right choice until MCT became MPACT. Well, hit and miss is normal so it' s ok as long as overall portfolio is performing.
Frasers Centrepoint Trust to buy additional 24.5% stake in Nex for $523.1 million
https://www.straitstimes.com/business/frasers-centrepoint-trust-to-buy-additional-245-stake-in-nex-for-5231-million
https://www.straitstimes.com/business/frasers-centrepoint-trust-to-buy-additional-245-stake-in-nex-for-5231-million
Analysts pleased with Frasers Centrepoint Trust, point to strength of NEX asset
Analysts at DBS Group Research, Citi Research and Maybank Securities are keeping their &ldquo buy&rdquo calls on Frasers Centrepoint Trust J69U 0.44% (FCT), while the analyst at RHB Bank Singapore maintains his &ldquo neutral&rdquo call.
While Citi and DBS have kept their target prices of $2.52 and $2.60 respectively, Maybank and RHB have both raised their respective target prices to $2.40 from $2.25 and to $2.30 from $2.12.
For FCT&rsquo s 1QFY2024 ended Dec 31, 2023, retail portfolio committed occupancy came in at 99.9%, a 1.5% y-o-y or 0.2% q-o-q growth, while shopper traffic grew 3.1% y-o-y.
Tenants&rsquo sales on the other hand, declined 0.7% y-o-y, although post-adjustment for tenants under renovation, tenants&rsquo sales would have been up 1.1% y-o-y.
Meanwhile, FCT&rsquo s first batch of Tampines 1 asset enhancement initiative (AEI) units commenced trading in December 2023, achieving a leasing commitment of 97% and is on track to be complete by September this year.
During the first quarter period, FCT&rsquo s aggregate leverage declined 2.1 percentage points (ppts) q-o-q to 37.2%, with tenant sales demonstrating stickiness at about 118% of pre-Covid levels. DBS finds this &ldquo surprising&rdquo as outbound normalisation encroaches into domestic retail spend.
Meanwhile, Allgreen&rsquo s ongoing acquisition of Seletar Mall has an estimated deal cap rate of about 3.9% to 4.3%, which shines a favourable light on FCT&rsquo s acquisition of NEX at a 4.8% cap rate. &ldquo We believe that the sponsor will continue to lend support to FCT&rsquo s acquisition targets to unwind additional stakes in NEX this year, and inject additional NEX stakes at a flat cap rate of 4.8%. notwithstanding potential valuations gains on the asset last year,&rdquo says DBS, while noting that NEX has seen a slight valuation uplift in the FY2023 ended September 2023 at $2.10 billion (compared to $$2.08 billion in September 2022, alongside cash flow improvements in the mall and increased shopper traffic.
On the other hand, Citi analyst Brandon Lee is upbeat on the strong rent reversion in 1QFY2024, as it was quite significantly in excess of FY2023&rsquo s +4.7%. Lee is also positive on the fact that the trust has managed new and cheaper hedges at less than 4% in 1Q2024, which should improve all-in debt cost (likely to be in the low 4% in FY2024) and rise fixed/hedged debt proportion to 72% from current 63%.
&ldquo Due to drawdown of new loans to fund distributions and Tampines 1&rsquo sAEI), 1QFY2024 gearing of 37.2% came in higher than earlier-forecasted 36.1%,&rdquo says Lee, who also sees plenty of organic growth drivers in NEX.
Maybank&rsquo s Krishna Guha has similar sentiments, as he points out that the trust&rsquo s 1QFY2024 update underscored the resilience of well-located malls and the importance of portfolio reconstitution and AEIs.
While the trust&rsquo s hedging costs has gone down, Guha is cautious on the higher borrowing cost, which reflects on-going repricing.Hhe expects FCT&rsquo s borrowing cost to rise from 2.2% to 4.3% by 2025.
Guha is also forcasting a 1.8% FY2023 to FY2026 dividend per unit (DPU) compound annual growth rate (CAGR), led by FCT&rsquo s growth in passing rents, higher ancillary income and service charges.
Upside factors noted by the analyst include an earlier-than-expected pick-up in leasing demand for retail space driving improvement in occupancy and better-than-anticipated rental reversions, while downside factors include the prolonged slowdown in economic activity, which could reduce demand for retail space, resulting in lower occupancy and rental rates.
He adds that the termination of long-term leases could also contribute to weaker portfolio tenant retention rate, and a sharper-than-expected rise in interest rates could increase the cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.
Lastly, RHB analyst Vijay Natarajan is less bullish than his peers on FCT. While he acknowledges the trust&rsquo s good set of 1QFY2024 operational numbers, healthy occupancy uplift, positive rent reversions and lower gearing, he remains &lsquo neutral&rsquo on the counter and only recommending investors to &lsquo buy&rsquo on dips.
With a lower gearing, Natarajan sees room for acquisitions. &ldquo This, in our view, allows FCT to selectively add up to a 10% stake in NEX mall (25.5% stake) from its sponsor at an estimated about $210 million without tapping the equity markets,&rsquo he says.
In addition, with occupancy levels at Central Plaza now stabilising, he see the possibility of this being divested in FY2024 &ndash thereby potentially adding more than $200 million in funds, which the trust could recycle to further increase its stake in NEX.
He adds that he expects FCT to have an annual operating expense (opex) saving of $1 million per annum, due to various sustainable initiatives implemented such as solar panels, food waste valorisation and water usage efficiency.
&ldquo These are positive steps in our view and show long-term benefits to FCT from the adoption of good environment, social and governance (ESG) practices,&rdquo writes Natarajan.
Key risks noted by the analyst include inflationary pressures introduced by the recent rise in the goods and service tax (GST) on retail tenants and shoppers, and the growing threat from omni-channel strategies by retailers and food delivery platforms.
That target price would imply a very low DPU yield. It' s a good company, but from a valuation standpoint seems unlikely to get there anytime soon given where other SREITs are trading right now. Lots of better value companies out there.
DBS: Frasers Centrepoint Trust ? Buy Target Price $2.60
Posted onJanuary 24, 2024
1Q24 Operational Update: First to benefit as buyers flock the SG retail scene
Posted onJanuary 24, 2024
1Q24 Operational Update: First to benefit as buyers flock the SG retail scene
Frasers Centrepoint Trust reports 99.9% retail committed occupancy in business update
Frasers Centrepoint Trust (FCT) J69U 2.23% has reported improved performance for its malls in 1QFY2024 ended Dec 31 as retail committed occupancy rose to 99.9%.
The portfolio&rsquo s committed occupancy, excluding Tampines 1 which is undergoing asset enhancement initiatives (AEIs), improved 0.2 percentage points q-o-q and 1.5 percentage points y-o-y, falling only 0.1% shy of full committed occupancy.
Meanwhile, Tampines 1 has achieved a leasing commitment of 97% of its AEI spaces. The first batch of completed units were handed over and commenced operations in December 2023, with overall AEI on track for completion by September.
Shopper traffic during the quarter was also 3.1% higher y-o-y while tenant sales for the same period was down 0.7% y-o-y. Adjusting for tenants under renovation, tenants&rsquo sales would have been up1.1% y-o-y, says FCT&rsquo s manager.
On the capital management front, gearing lowered to 37.2% as at Dec 31, 2023, compared to 39.3% as at end-September last year at 33.9%.
With average cost of debt rising to 4.3 % during the quarter from 4.1% in the quarter ended Sept 30, 2023, FCT&rsquo s adjusted interest coverage ratio in 1QFY2024 fell to 3.35x versus 3.47x in 4QFY2023.
https://www.businesstimes.com.sg/companies-markets/frasers-centrepoint-trust-reports-999-retail-portfolio-occupancy-q1
Frasers Centrepoint Trust (FCT) has reported a committed occupancy for its retail portfolio of 99.9% for the first quarter ended 31 December 2023, on the back of stronger shopper traffic and improved tenant sales. FCT's manager said that each of the retail malls under the trust has a committed occupancy of at least 99%, and tenants' sales were 0.7% lower year on year for the period October to December 2023 due to renovation works carried out at several key anchor tenants' units ahead of the festive season. Shopper traffic for its malls was also 3.1% higher year on year for the period ended December 2023. The manager updated that asset enhancement initiative (AEI) works are progressing well for its Tampines 1 property, and the trust's gearing level as at the end of December stood at 37.2%.
Frasers Centrepoint Trust (FCT) has reported a committed occupancy for its retail portfolio of 99.9% for the first quarter ended 31 December 2023, on the back of stronger shopper traffic and improved tenant sales. FCT's manager said that each of the retail malls under the trust has a committed occupancy of at least 99%, and tenants' sales were 0.7% lower year on year for the period October to December 2023 due to renovation works carried out at several key anchor tenants' units ahead of the festive season. Shopper traffic for its malls was also 3.1% higher year on year for the period ended December 2023. The manager updated that asset enhancement initiative (AEI) works are progressing well for its Tampines 1 property, and the trust's gearing level as at the end of December stood at 37.2%.
UOBKH maintains ' overweight' rating on S-REITs after seeing ' healthy signs' that inflationary pressures have moderated
UOB Kay Hian&rsquo s analyst Jonathan Koh has maintained their &ldquo overweight&rdquo rating on Singapore REITS (S-REITs), noting that there are &ldquo healthy signs&rdquo that inflationary pressures have moderated.
Koh keeps his &ldquo buy&rdquo call with target prices of $1.41 for CDL Hospitality Trust (CDLHT), $2.42 for Frasers Centrepoint Trust J69U 0.46% (FCT), 76 cents for Far East Hospitality Trust Q5T 2.33% (FEHT), $1.06 for Keppel REIT, 80 cents for Lendlease Global Commercial REIT JYEU 0.83% (LREIT) and $2.69 for Mapletree Industrial Trust ME8U -0.88% (MINT).
In his analyst note on Dec 1, Koh names US REITs, Keppel Pacific Oak US REIT, Prime US REIT OXMU 11.38% , Digital Core REIT, United Hampshire US REIT ODBU 0.00% , as his top performers. The REITS have gained 38.6%, 32.3%, 21.8% and 15.1% respectively.
Meanwhile, well-liked blue chips Lendlease Global Commercial REIT (LREIT), Mapletree Logistic Trust (MLT) and FEHT also rallied 18.6%, 9.5% and 9.3% respectively, he says.
On the other hand, Koh names Parkway Life REIT as a top underperformer. He notes that Mapletree Pan Asia Commercial Trust N2IU 1.46% (MPACT) and CapitaLand Integrated Commercial Trust C38U 2.75% (CICT), which are well diversified across geographies and asset classes, also saw smaller gains of 3.0% and 3.4% respectively.
Hospitality REITs, namely Frasers Hospitality Trust ACV -1.98% (FHT), CapitaLand Ascott Trust HMN 1.08% (CLAS) and CDLHT saw softer rebounds of -1.0%, 2.8% and 4.1% respectively, he adds.
The analyst underscores some key developments in the REIT sector for November. Keppel entered into an agreement to acquire Wilkie Edge at Selegie Road from a joint venture between Lian Beng Group and Apricot Capital. The 12-storey retail and office complex of Wilkie Edge has a net lettable area of 154,500 square feet (excluding 154-unit Citadines Mount Sophia owned by CLAS).
Koh says that the agreed pricing is $350 million or $2,265 per square foot, which translates to net yield of 3%. Keppel Capital is expected to enhance Wilkie Edge to improve net yield, he adds.
Founder and chairman of Fragrance Group, James Koh, acquired two ageing freehold industrial buildings, which could be redeveloped into modern industrial properties. One of these is a five-storey industrial building at 3 New Industrial Road, purchased from Kimly 1D0 0.00% Construction for $61 million, while the other is a low-rise industrial building at 3 Kallang Pudding Road for $40 million.
Meanwhile, visitor arrivals in Singapore increased 37.8% y-o-y but eased 0.4% m-o-m to 1,125,948 in Oct, reaching 74% of pre-pandemic levels. Indonesia was the top source market (180,881), followed by China (122,764) and India (94,332).
Koh says that the Singapore Tourism Board expects visitor arrivals to reach 12 million -14 million in 2023, as compared to the 6.3 million in 2022.
Finally, Koh notes that FTSE ST Real Estate Investment Trusts Index (FSTREI) surged 6.6% in November, outperforming the Straits Times Index (STI)&rsquo s &ldquo meagre&rdquo 0.1% gain. The analyst highlights that minutes for the Federal Open Market Committee meeting on Nov 1 showed policy makers agreeing to proceed carefully on future rate decisions.
&ldquo US consumer price index eased 0.5 percentage points (ppts) m-o-m to 3.2% in October, indicating continued disinflation, while the yield for 10-year Singapore government bonds receded 43 basis points m-o-m to 2.95% in November,&rdquo says Koh.
It' s a good company the only (!) issue is that with the share price where it is the DPU yield is barely above risk free rates while the DPU barely grows. It must be amongst the lowest growth adjusted yielding REITs, if not the lowest.
Frasers Centrepoint Trust's share price has been stable so far this year despite a broad sell-off in Singapore REITs. We find out why investors are buying into this retail REIT.
https://growbeansprout.com/frasers-centrepoint-trust-share-price-nov-2023
https://growbeansprout.com/frasers-centrepoint-trust-share-price-nov-2023
Analysts trim estimates and TPs on FCT after 2HFY2023 and FY2023 results
Analysts are mostly remaining positive on Frasers Centrepoint Trust J69U 0.00% (FCT) after the REIT reported a distribution per unit (DPU) of 6.02 cents for the 2HFY2023 ended Sept 30 and a DPU of 12.15 cents for the FY2023.
CGS-CIMB Research, DBS Group Research, Maybank Securities and OCBC Investment Research (OIR) have kept their &ldquo add&rdquo and &ldquo buy&rdquo calls while PhillipCapital has kept its &ldquo accumulate&rdquo call. RHB Bank Singapore has kept its &ldquo neutral&rdquo call.
Save for DBS, which has kept its target price unchanged at $2.60, the rest of the brokerages have lowered their target prices. CGS-CIMB has lowered its target price to $2.52 from $2.62, Maybank has lowered its target price to $2.25 from $2.35 while OIR has lowered its target price to $2.35 from $2.41.
PhillipCapital has lowered its target price to $2.29 from $2.35 while RHB&rsquo s target price was down to $2.12 from $2.15.
&ldquo FCT continues to pull the right levers of growth organically with record-high occupancy of 99.7% across 10 retail shopping malls with strong reversionary growth of 5% in rentals,&rdquo explain the DBS analysts, Geraldine Wong and Derek Tan.
Furthermore, the analysts believe that FCT&rsquo s manager&rsquo s track record in portfolio rejuvenation in recent years will help ensure the resiliency of the REIT&rsquo s portfolio for medium-term sustainability.
Moreover, FCT&rsquo s portfolio, which saw tenant sales at around 15% above its pre-Covid-19 levels, continues to outperform its peers on several fronts. The REIT&rsquo s occupancy cost, which stood at 15.6% for FY2023, below its pre-Covid-19 levels of 16.6% to 17.0%, means there is scope for further rental upside. There is also more room for reversionary rents to rise, backed by healthy tenant sales, note DBS&rsquo s Wong and Tan.
Looking ahead, the analysts see the possibility of FCT adding its stake in Nex mall in the coming FY.
&ldquo FCT&rsquo s valuation sets a precursor for the year-end revaluations of other retail Singapore REITs (S-REITs), while we expect stable cap rates for Singapore retail valuations and, correspondingly, some support for gearing levels,&rdquo write the analysts from DBS.
See also: PhillipCapital starts coverage of China Aviation Oil with a ' buy' and $1.01 target price
While the analysts&rsquo target price remains unchanged, they have tweaked their interest rate assumptions to a more &ldquo conservative&rdquo 4.25% average interest cost for FY2024/FY2025 from 4% previously.
&ldquo The divestment of its Changi City Point (November 2023) and Hektar REIT stakes (December 2023) has been accounted for in our numbers, accompanied by the debt repayment of $375 million for interest cost savings,&rdquo say Wong and Tan. &ldquo Reversions are pegged to an inflation-hedged range of 3.0% - 5.0% as positive traction continues y-o-y into FY2024.&rdquo
Following the completion of the divestment of Changi City Point and stakes in Hektar REIT, FCT&rsquo s gearing will be lowered to a &ldquo comfortable&rdquo 36.1%.
&ldquo While proceeds from the sale of Changi City Point ($338 million) and Hektar REIT ($39 million) will likely be used to pay off debt in the interim, which is likely to be the best use of the proceeds for now to deleverage and lower exposure to interest rates, the additional headroom provides FCT with greater flexibility to make acquisitions in the medium term, when the interest rate environment stabilises. At an implied cap rate of 4.9% for Nex, the redeployment into Nex can be done in a way that is accretive to value,&rdquo they write.
In their Oct 26 report, the analysts have lowered their DPU estimates marginally to 11.9 cents and 12.2 cents in the FY2024 and FY2025 respectively to account for a forward yield of 5.6% and 5.8% in their new estimates.
FCT &lsquo top pick&rsquo for CGS-CIMB
CGS-CIMB analysts Natalie Ong and Lock Mun Yee have named FCT as their &ldquo top pick&rdquo within the retail sector S-REITs as they like the resilience and demand for space at the REIT&rsquo s suburban malls
In their report dated Oct 26, the analysts note that the REIT&rsquo s full-year DPU stood in line with their expectations at 99.9% of their estimates. Furthermore, they liked that the REIT logged positive rent reversions, higher turnover rents, as well as recorded a stable balance sheet for the year ended Sept 30.
&ldquo In the FY2023 briefing with analysts, management said it will continue to focus on increasing gross turnover rents by rejigging the tenant mix towards tenants with higher sales, and pushing for higher base rents,&rdquo write Ong and Lock. &ldquo We think positive reversions, higher gross turnover rents from improved tenant sales and contributions from the completed asset enhancement initiative (AEI) at Tampines 1 will drive FY2024 revenue growth.&rdquo
&ldquo However, management guided that higher electricity, water and manpower costs could result in slight NPI margin compression in FY2024. FCT locked in electricity costs for FY2024 at slightly higher rates y-o-y &ndash management expects utility costs as a percentage of electricity costs to increase from 10% in FY2023 to 11% in FY2024,&rdquo they add.
Despite the positive outlook, the analysts have lowered their earnings per share (EPS) estimates for the FY2024 and FY2025 to reflect the divestment of Changi City Point and Hektar REIT units. They have also lowered their DPU estimates for the FY2024 and FY2025 by 3.0% and 3.4% on higher operating expenses (opex) and cost of debt assumptions.
Funding costs bite amid stable results: Maybank
Maybank&rsquo s Krishna Guha has also lowered his DPU estimates for the REIT by 1% to 2% in addition to his lowered target price. The lower DPU estimates factored in slower retail sales and rising borrowing costs while the reduced target price came on the back of a higher discount rate.
The analyst has also forecasted a compound annual growth rate (CAGR) of 2% for FY2022 to FY2024 led by growth in passing rents, higher ancillary income and service charges. That said, he expects borrowing costs to rise from 2.2% to 3.8% by 2025.
&ldquo [FCT&rsquo s] full year DPU of 12.15 cents slipped 0.6% y-o-y, in line with our estimate of 12.16 cents,&rdquo says Guha.
&ldquo Topline growth was driven by higher occupancy, positive reversions and higher ancillary income. This was partly offset by higher expenses and lower contribution from assets under AEI. Funding cost inched up. Cap rates were stable and asset values rose for prime suburban malls. Management is focussed on strategic portfolio reconstitution while managing costs,&rdquo he adds.
Higher-for-longer interest rate environment may pressure DPUs: OCBC
The research team at OIR note that FCT&rsquo s FY2023 results came in with its expectations, which reflected its resilient operations.
&ldquo The only blemish [came from] the slight decline in its DPU,&rdquo the team adds. The decline in FCT&rsquo s FY2023 DPU was due to the jump in borrowing costs. To this end, the OIR team sees that the higher-for-longer interest rate environment may pressure FCT&rsquo s DPUs.
That said, it remains positive on the REIT, noting that FCT had previously established a strong track record of delivering positive DPU growth every year since its listing in July 2006 to FY2019 with the exception of FY2020 due to the Covid-19 pandemic. FCT&rsquo s FY2021 results saw a &ldquo firm rebound&rdquo y-o-y while growth continue in FY2022.
&ldquo Operationally, we believe FCT&rsquo s relatively more defensive and resilient portfolio of suburban malls in Singapore would position it favourably amid an uncertain macroeconomic landscape, given their dominant positions in their respective catchment areas. Management&rsquo s astute divestments has also alleviated the strain on its balance sheet, and it is now better positioned to pursue inorganic growth opportunities,&rdquo writes the OIR team.
The team has lowered its DPU forecasts for the FY2024 and FY2025 by 0.4% and 1.2% respectively as they factor in FCT&rsquo s proposed divestments and full-year results in its model.
&ldquo Given the increased market volatility, we also increase our cost of equity assumption from 6.2% to 6.4%,&rdquo they add.
PhillipCapital expects to see positive rental reversions in FY2024
PhillipCapital&rsquo s Darren Chan likes FCT&rsquo s &ldquo nearly full&rdquo occupancy at 99.7% as at Sept 30. The REIT&rsquo s continued growth in tenants&rsquo sales and shopper traffic, higher portfolio valuation as well as a lack of refinancing risks in FY2024 are all positives.
However, higher operating costs were a concern to Chan, who notes that this is likely to eat into FCT&rsquo s net property income (NPI) margins in FY2024. The analyst expects FCT&rsquo s NPI margins to drop from 71.8% in FY2023 to 70.6% in FY2024.
&ldquo FCT has done well on the transactions, with five different transactions announced in FY2023 with a total value of $1.1 billion. The most recent were the divestments of Changi City Point and FCT&rsquo s interest in Hektar REIT (expected to be completed by the end of this year), with the divestment proceeds planned to repay debt with the highest interest cost,&rdquo Chan writes in his Oct 27 report.
&ldquo Going forward, further inorganic growth opportunities include the acquisition of the sponsor&rsquo s pipeline of assets such as the 24.5% effective interest in Nex and Northpoint City South Wing. The first batch of AEI units at Tampines 1 is expected to be completed in November 2023, with tenants beginning operations from December 2023,&rdquo he adds. &ldquo The mall continues to operate as works are staged and more than 94% of AEI spaces have been pre-committed to date. The full completion of Tampines 1 AEI is expected in 4Q2024.&rdquo
However, Chan has lowered his DPU forecasts for the FY2024 and FY2025 both by 5% as he rolls his forecasts forward.
&ldquo We expect positive rental reversions to remain intact for FY2024e, supported by the low occupancy cost of 15.6% and tenants&rsquo sales growth. The current share price implies a FY2024 DPU yield of 5.9%,&rdquo he says.
FCT a &lsquo defensive safe haven&rsquo : RHB
Unlike his peers, RHB&rsquo s Vijay Natarajan remained on the fence on FCT, with the REIT&rsquo s FY2023 results coming in below his expectations.
On the one hand, the analyst likes that retail market conditions are reflecting a healthy improvement from steady income growth and tourist arrivals, which came across FCT&rsquo s operational performances across its malls.
The recent divestment moves are a plus in his book, as well. That said, higher interest and operational cost pressures will continue to weigh on earnings, he says.
&ldquo FCT remains a defensive safe haven but current yield spreads are not attractive,&rdquo he writes.
Like his counterparts, Natarajan has also lowered his DPU estimates for the FY2024 to FY2026 by 1% to 3% by fine-tuning interest costs and NPI margins.
&ldquo FCT&rsquo s environmental, social and governance (ESG) score of 3.2 (out of 4.0) is two notches above the country median, resulting in a 4% ESG premium to our dividend discount model (DDM)-derived intrinsic value &ndash which we applied to derive our target price,&rdquo he says.
Investors may accumulate positions in FCT, says Moomoo
Moomoo Singapore&rsquo s equity dealer, Too Juncheong, believes that investors who have confidence in FCT may look to accumulate their positions in the REIT during this higher-for-longer interest rate environment with its current dividend yield of nearly 6%. Such investors can then await for the eventual rate cuts, Too adds in his unrated report.
&ldquo FCT is the largest suburban retail mall owner in Singapore, and its presence is undeniable for most Singaporeans&hellip Investors who are looking for opportunities in FCT can physically head down to any of the nine retail malls owned by FCT, to have a feel and sense of the occupancy and activity within the malls, something not as accessible for investors looking at overseas REITs,&rdquo he writes.
Should investors prefer to analyse the stock technically, FCT recently fell below most of its important support levels.
&ldquo On fib retracement levels, key areas where the stock support levels are left on a common ratio of 38.2% and 23.6%, which are at 2.01 and 1.95, respectively,&rdquo says Too.
&ldquo The downtrend momentum is extraordinary, and investors should be cautious. Any loss on the aforementioned support levels will indicate that the stock may need to make further adjustments,&rdquo he adds.
I think FCT is among the most stable REITs to hold, and there is no need to worry about yields even in an economic downturn.
REITs Market in Turmoil: Why Frasers Centrepoint Trust Is Your Anchor of Stability #dividendstocks
https://youtu.be/Y0Kaaxdd6e0
REITs Market in Turmoil: Why Frasers Centrepoint Trust Is Your Anchor of Stability #dividendstocks
https://youtu.be/Y0Kaaxdd6e0
Frasers Centrepoint Trust announces proposed divestment of 28.85% of Hektar REIT
Frasers Centrepoint Trust' s (FCT) manager announced that it plans to divest some 143.9 million units in Hektar REIT for the equivalent of $37.4 million. Following the divestment which completes in 4Q2023, FCT will hold around 2.12% of Hektar REIT after the sale, down from its current unitholding of 30.97%.
The divestment price of RM0.89 per unit is a 48.3% premium to the last traded price of RM0.60 as at Sept 22, but is at a discount of 26.9% to Hektar REIT' s NAV of RM1.217 as at June 30.
On August 30, FCT' s manager announced to proposed sale of Changi City Point for $338 million. The sale price represents a net gain and capital gain of $10.9 million and $20 million respectively. Following the sale of Changi City Point, FCT&rsquo s pro forma aggregate leverage would fall from 40.2% to 37.1%.
Investors wondering whether the disposal is a good thing or not. My views are here:
Changi City Point is always crowded! Why is Frasers Centrepoint Trust Selling it?
https://youtu.be/cS9-9X8U-y0
Changi City Point is always crowded! Why is Frasers Centrepoint Trust Selling it?
https://youtu.be/cS9-9X8U-y0
in the past two years, REITs have been in a bear market due to the high interest rate environment. In fact, the current share price correction has been going on for about 18 months in duration and the FTSE REIT index has fallen about 22%!
https://www.smallcapasia.com/4-stable-reits-to-safeguard-against-the-bear-markets-and-high-interest-rates/
https://www.smallcapasia.com/4-stable-reits-to-safeguard-against-the-bear-markets-and-high-interest-rates/
Whether one should see the divestment favourably depends on one' s point of view - what is your starting point, and your counterfactual case if the sale did not take place.
The company states it will use all the proceeds to delever. That sounds to me an implicit acknowledgement that the company was previously overlevered, and is reinforced by the fact that the company acknowledges the transaction is DPU dilutive.
Yes if you were starting off with a pessimistic view of the company already then this divestment may seem like good news. But that is not where the analysts are coming from so their analysis to me is pretty flawed.
The company states it will use all the proceeds to delever. That sounds to me an implicit acknowledgement that the company was previously overlevered, and is reinforced by the fact that the company acknowledges the transaction is DPU dilutive.
Yes if you were starting off with a pessimistic view of the company already then this divestment may seem like good news. But that is not where the analysts are coming from so their analysis to me is pretty flawed.
Analysts view FCT&rsquo s Changi City Point divestment favourably Citi upgrades to &lsquo buy&rsquo
Analysts are positive on Frasers Centrepoint Trust&rsquo s (FCT) J69U 0.00% decision to divest Changi City Point.
FCT, on Aug 30, announced that it will be divesting the mall to a foreign buyer with real estate presence within Singapore. The mall was divested at a cash consideration of $338 million. The proceeds will then go towards repaying the REIT&rsquo s loans and reducing its aggregate leverage. The REIT&rsquo s average cost of borrowings and hedge ratio of fixed-rate loans will also be improved on a pro forma basis.
Citi Research analyst Brandon Lee has upgraded his call on FCT to &ldquo buy&rdquo given its improved gearing to 37.1%, making the REIT the lowest-geared retail Singapore REIT (S-REIT) among the REITs within his coverage.
FCT&rsquo s move will also give it sufficient debt headroom to make potential acquisitions that are accretive to its distribution per unit (DPU), Lee adds.
The recovery of retail revenue after Covid-19 is also another plus for FCT in the analyst&rsquo s book.
With all that in mind, Lee has increased his target price to $2.51 from $2.30. His new target price has an implied P/B of 1.08x in-line with FCT&rsquo s five-year pre-Covid-19 mean of 1.09x.
See also: UOB Kay Hian keeps &lsquo buy&rsquo on Capitaland Ascott Trust with lowered target price
Lee has also upped his DPU estimates for FY2023, FY2024 and FY2025 by 1.7%, 0.7% and 1.1% respectively on the revised debt cost and lower debt from the sale proceeds of Changi City Point.
Maybank Securities analyst Krishna Guha is positive on the deal as the REIT&rsquo s portfolio attributes and debt metrics will improve after the divestment.
&ldquo The mall has been underperforming within the portfolio. Historical occupancy and net property income (NPI) yield has been at or below average. It lacks a residential catchment and does not fit, in our view, with FCT&rsquo s strategy of focusing on prime suburban retail malls,&rdquo he writes.
&ldquo The debt repayment improves financial flexibility. As such, the divestment puts FCT in a stronger position to execute the ongoing portfolio reconstitution strategy,&rdquo he adds.
Guha has kept his &ldquo buy&rdquo call with an unchanged target price of $2.35.
DBS Group Research analysts Geraldine Wong and Derek Tan have also kept their " buy" call on FCT with an unchanged target price of $2.60. Like Maybank' s Guha, Wong and Tan like that the sale has given FCT an attractive exit yield of 4.3% in consideration of the shorter land lease tenure of the mall at 46 years.
The sale also serves as an opportunity to " crystallise" net asset value (NAV) for the REIT due to the mall' s low land lease.
" The land lease tenure of the mall is the oldest within the portfolio &ndash at 46 years &ndash and will start to see a faster rate of valuation decay in the medium term," the analysts explain.
Referring to Bala' s curve as a guide on valuation implications along a decline in leasehold value, the analysts note that a comparison between Changi City Point and another one of FCT' s assets, Nex, will value both malls at around 70% and 89% of a fresh 99-year leasehold basis based on Changi City Point' s 46-year leasehold tenure and Nex' s 85-year leasehold tenure.
As such, the analysts have adjusted their NPI yields across selected FCT properties on a 99-year leasehold basis " for a fairer comparison to obtain an implied valuation cap of 3.6% for Changi City Point, even tighter than valuer cap rates for retail assets at [around] 4.25-4.50% for dominant malls."
With the improved financial flexibility after the divestment, the analysts at DBS see the possibility of FCT acquiring its sponsor' s remaining 25.5% effective stake in the joint venture owning Nex. Should the REIT be able to redeploy its debt capacity into Nex at an initial yield of 4.8% to 4.9%, that will be mean an immediate accretion to its DPU in comparison to its exit cap on Changi City Point at 4.31%.
" Moreover, the need for equity fund raising to fund the acquisition without overstretching its balance sheet is an overhang removed, in our view," the analysts write, adding that the purchase of its remaining sponsor' s stake in Nex will require $350 million, which can be fulfilled from the divestment quantum of Changi City Point.
" On a portfolio perspective, this upcycling will be a premium to FCT&rsquo s overall portfolio strategy on all aspects including a longer lease tenure for Nex at 85 years, expansion of presence within the north &ndash north east region of Singapore where retail space per capita is the lowest island-wide, dominant attributes at Nex mall with excellent mall connectivity to an MRT interchange station, and DPU accretion to a higher yielding asset at high 4%," the analysts add.
" FCT&rsquo s share price has held up well against peers year-to-date or ytd (-1% ytd), with more room to rally given that [the] equity fund raising overhang on [its] share price has been substantially lifted for now," they continue.
RHB Bank Singapore analyst Vijay Natarajan has kept his &ldquo neutral&rdquo call with a higher target price of $2.13.
&ldquo The proposed Changi City Point divestment is a positive move and one we believe addresses gearing concerns and ballooning interest cost pressures,&rdquo he says.
The analyst also expects the divestment to have a &ldquo mild positive effect&rdquo on DPU as the proceeds will help to repay FCT&rsquo s high interest floating rate loans.
&ldquo With lower gearing, FCT may now look more keenly at adding stakes in some of its newer high-quality malls &ndash e.g. Waterway Point and NEX &ndash that should help consolidate its dominant suburban retail position,&rdquo he adds.
Analysts view FCT?s Changi City Point divestment favourably Citi upgrades to ?buy?
Felicia Tan
8/31/2023 ? 05:29 PM GMT+08
https://www.theedgesingapore.com/capital/brokers-calls/raffles-medicals-1hfy2023-results-likely-have-set-new-baseline-profitability
Felicia Tan
8/31/2023 ? 05:29 PM GMT+08
https://www.theedgesingapore.com/capital/brokers-calls/raffles-medicals-1hfy2023-results-likely-have-set-new-baseline-profitability
Frasers Centrepoint Trust to divest Changi City Point for S$338 million
Changi City Point, which comprises three storeys and one basement level, has a net lettable area spanning 208,453 square feet.
FRASERS : J69U +0.9% Centrepoint Trust : J69U +0.9% (FCT) will divest retail mall Changi City Point for S$338 million to an unrelated third party.
The capital gain on the property is estimated at S$20 million, after taking into account the property&rsquo s independent valuation of S$325 million as at Jul 31, its manager said on Wednesday (Aug 30).
Changi City Point, which comprises three storeys and one basement, has a net lettable area spanning 208,453 square feet (sq ft) and gross floor area of 306,378 sq ft. It has a 60-year lease which started on Apr 30, 2009.
The mall is located at 5 Changi Business Park Central 1 and is connected to Expo MRT station. This train stop also serves as an interchange station between the Downtown Line and the East-West Line, which goes to Changi Airport.
The property has 128 tenants, including key tenants FairPrice Finest and Daiso. Total shopper traffic stood at about 7.5 million for the period between October 2021 and September 2022.
The purchaser, which was not named, will pay a deposit of S$16.9 million for the property after signing the sales and purchase agreement on Aug 29. The remaining balance will be paid when the transaction is completed on Nov 15, 2023.
The manager said net proceeds from the sale will be used to repay certain debts. This allows the real estate investment trust (Reit) to lower its gearing and boost its financial position.
Based on pro forma estimates as at Jun 30, the manager expects FCT&rsquo s portfolio occupancy rate to rise to 99.3 per cent from 98.7 per cent.
The average remaining lease tenure of the Reit&rsquo s portfolio will also rise by 2.3 years, and portfolio tenant sales is projected to climb by 3.9 per cent. Average gross rent per sq ft is also estimated to increase by 3.7 per cent.