Having delivered eight consecutive years of DPU growth since listing in 2006, a momentum unbroken even during the Global Financial crisis, Frasers Centrepoint Trust (FCT) has emerged stronger from the crisis. We initiate coverage on FCT and highlight why FCT would be an ideal REIT to add to your portfolio as a source of a stable recurring income, yet “unboring” with exciting opportunities to grow.

Investment merits

Retail REITs have the most favourable sector dynamics – Low upcoming supply, especially in regions where FCT’s main malls Causeway Point and Northpoint are.

Suburban malls’ increasing appeal to international retailers will drive demand for suburban retail space – An increasing number of international retailers are venturing out from urban malls to capture the suburban crowd.

Growth opportunities: Exciting sponsor pipeline ahead – We are deeply excited about FCT’s sponsor’s property pipeline. Waterway Point in particular, fits into FCT’s suburban “theme” and is well located to capture Punggol’s fast expanding population.

Most resilient portfolio within our favourite sector of REITs – FCT has resilient malls dominant in their respective neighbourhood. We also like their strategic portfolio tenant mix with a higher focus on food and beverage.

Strong management track record of 8% CAGR in DPU since IPO in 2006 – Management has achieved DPU growth even through the recession years from 2007-09, and exhibited a good track record of driving growth through AEIs and acquisitions.

Investment Actions

We initiate coverage on FCT with an "ACCUMULATE" rating and DDM-derived TP of S$2.14 (using DDM valuation, cost of equity 7.2%, terminal growth 1.5%) representing an upside of 12.4% from current price.

Source: Phillip Securities Research - 12 Feb 2015