• Keep NEUTRAL and SGD2.35 TP, 4% upside. Frasers Centrepoint Trust’s 2HFY24 (Sep) financials were broadly in line. Operational performance across assets remains largely healthy with high occupancy expected to be maintained and rent reversions to be in the mid-single digits. Finance costs are starting to inch lower and we see room for a further downtrend in FY25. However, retail sales across the island-state have started to moderate, with a higher tenant churn seen indicating pockets of weakness.

• Portfolio occupancy was flat QoQ at 99.7%, with improvement seen at Causeway Point (99.8%) and Central Plaza (office) (95%), but offset by a slight decline at Tiong Bahru Plaza, Waterway Point and White Sands. Average portfolio rent reversion strengthened to 7.7% for FY24 (FY23: 4.7%, 1HFY24:7.5%), with overall occupancy cost of 16% (FY23: 15%). However, there has been a noticeable lull in retail sales growth across Singapore in the last two quarters. Some of the factors driving this include the normalisation of retail spend post COVID-19, higher outbound travel spending, and more value conscious purchases.

• Hougang Mall to undergo SGD51m asset enhancement initiative (AEI) that will result in an additional c.11,000 sqf of NLA. FCT also plans to rebalance the trade mix of the mall with an increase in the F&B proportion from 26% to 32% of NLA and revamp the mall’s entrance area. AEI is expected to commence in 2QCY25 and complete in 3QCY26 with the mall continuing operations. Targeted ROI for the AEI is c.7%. The move follows the completion of Tampines 1’s AEI in Aug 2024. Post AEI, the mall has achieved full occupancy with a freshly curated mix of tenants and final ROI of >8%.

• Remains optimistic on Causeway Point and sees various catalysts from the planned increase in new housing and economic initiatives taken by the Government to develop the region. This comes amid market concerns over a possible negative impact from the commencement of the Johor Bahru- Singapore Rapid Transit System in end-2026, which the REIT manager sees it more as being complimentary.

• Flat 2H DPU, full year DPU down slightly by 1% on the back of divestment and lower contribution from Tampines 1 due to the AEI, which was partially offset by income from the acquisition of an additional 25% stake in NEX mall (Mar 2024). Portfolio valuation rose by SGD80m or 1.2%. Gearing edged lower and is comfortable at 38.5%, with a healthy interest cover of 3.4x. Finance cost inched slightly lower during the last quarter to 4.1%, and for FY25, we expect it be at c.4%, with 71% of its debt currently hedged.

• We introduce FY27F and trim our FY25F-26F DPU by -2% and -1% as we roll over our DDM valuation. Key catalyst: Achieving tax transparency for NEX mall income, divestments with Singapore’s economic growth faltering is a key risk. FCT’s ESG score of 3.4 results in a 6% ESG premium.

Source: RHB Research - 28 Oct 2024