Frasers Centrepoint Trust Earnings: Strong Tenant Sales Growth To Translate to Rental Growth

Frasers Centrepoint Trust’s J69U third-quarter fiscal 2023 (ending September) business update was largely in line with our expectations. Shopper traffic and tenants’ sales continue to post impressive year-on-year growth of 16% and 5%, respectively, while year-to-date tenants’ sales averaged 16% above pre-COVID level (2019). The trust also completed its refinancing exercise for fiscal 2023 and lengthened its average debt maturity to 2.5 years as of the end of June 2023, from 1.9 years at the end of March 2023. Meanwhile, the proportion of fixed-rate debt fell to 63% from 76.4% in the previous quarter. We view this positively because we think interest rates are close to peaking and should start falling in 2024. With no major surprises, we retain our fair value estimate of SGD 2.38 per unit. We think the trust is slightly undervalued, and we continue to like its portfolio of high-quality suburban malls, which we believe can help the trust weather any economic downturn due to their roles in providing necessity shopping.

FCT’s overall occupancy rate remained high at 98.7% (excluding Tampines 1, which is going through an asset-enhancement initiative) as of June 2023. Most of its retail malls have a nearly 100% occupancy rate except for Changi City Point, which saw a 6.5-percentage-point quarter-on-quarter decrease to 92.6%. According to management, the decline at Changi City Point is largely transitional, and the team is currently close to signing a new tenant that would restore the occupancy rate close to the previous quarter’s level. As for the asset enhancements at Tampines 1, management shared that work has commenced and is on track to be completed by the third quarter of 2024. Positively, the trust has also managed to prelease over 90% of the enhanced space. We think the trust is well positioned to translate its robust tenant sales growth to rental growth, and we expect the trust to continue to add value to unitholders through selective asset-enhancement initiatives.