Frasers Centrepoint Trust Earnings: Starting Fiscal 2024 in Good Shape

We retain our fair value estimate of SGD 2.38 per unit for Frasers Centrepoint Trust J69U, or FCT, after the in-line second-half fiscal 2023 (ending September) results. Overall, we like that management is taking active steps to reconstitute its portfolio by divesting its noncore interests in Hektar REIT and Changi City Point, and redeploying the proceeds to repay debt that would otherwise have a negative impact on its distribution per unit, or DPU, if refinanced at a higher interest rate in the current environment. We think the trust is starting fiscal 2024 in better shape than a year before and expect it to benefit from the strong shopper traffic and tenant sales growth in fiscal 2023 that should set the stage for better positive rental reversions. Based on its last closing price of SGD 2.11, the trust trades at a fiscal 2024 dividend yield of 5.63%. We think the trust is slightly undervalued and we like its portfolio of high-quality suburban malls that we believe will stay resilient in times of economic uncertainty and volatility.

Excluding Tampines 1, which is going through asset enhancement works, FCT’s portfolio occupancy rate grew 1 percentage point to 99.7% in the September quarter from 98.7% in the previous quarter. Notably, all the retail malls have occupancy rates that are at least 99%, demonstrating their quality. Looking ahead, management remains optimistic and believes that Singapore’s population growth of 5% year on year as of June 2023 and the rise in household income will have a positive effect on consumer spending. On this note, management expects tenant sales growth to remain healthy and this should bode positively for the trust during lease renewals. For the year-end valuation, the trust enjoyed a small fair value gain of SGD 9.9 million as valuers’ capitalization rates remained unchanged.