Maybank Kim Eng analyst Chua Su Tye has upgraded his rating of Frasers Centrepoint Trust (FCT) from “hold” to “buy” with a target price of $2.54, from $2.45 previously

Meanwhile, PhillipCapital analyst Natalie Ong has maintained her “accumulate” call, with an increased target price of $2.79, from $2.69 previously. 

The positive ratings come on the back of a $1.06 billion acquisition of the remaining 63.1% interest from Frasers Property (FPL) in Asia Retail Fund (ARF), as well as the divestment of Bedok Point to FPL for $108 million.

See: Frasers Centrepoint Trust announces transformational transaction, catapulting it to the big league

The transactions will boost FCT’s portfolio from 7 to 11 properties, its net lettable asset (NLA) by 64% to 2.3m sq ft, and assets under management (AUM) by 68% to a total of $6.65 billion. 

Additionally, FCT’s market share of suburban retail floor space will jump from 5.4% to 10.2%, putting it just behind CapitaMall Trust (CMT) at 10.6%. 

The deals also make FCT the second-largest Singapore retail landlord with a 6.0% market share of overall retail floor space, compared to CMT’s 11.8%.

Chua said the divestment price represents a 2.5% yield and allows FCT to reconstitute the portfolio by acquiring higher-yielding assets with larger scale. Proceeds will be used to pare down debt.

The deal has also boosted FCT’s AUM and reinforced its market share in the more resilient suburban malls space, with PhillipCapital’s Ong also noting this will strengthen FCT’s portfolio by reducing asset concentration risk.

Chua pointed out that the ARF assets are complementary to FCT, with their concentration in essential trade at 53.8% of gross rental income. 

“They should strengthen FCT’s suburban retail mall footprint with a projected 40% increase in catchment population especially in the north, northeast and eastern regions with limited new supply.” he added. 

Maybank Kim Eng sees suburban malls as more resilient, compared to downtown retail properties on occupancies and rents. Over 99% of its tenants have reopened, and tenant sales have returned to pre-COVID levels, despite crowd density measures. 

Ong also noted the resilience of suburban malls in the essential and recurrent spending that occurs at suburban malls, as evidenced during the circuit breaker and subsequent recovery period. She said The transactions will increase FCT’s suburban NLA by 79% and lower the concentration risk from 30% to 22% from any single asset. The growth in AUM and market capitalisation will also increase FCT’s scale and visibility among the S-REITs. 

Win-win for parent company Fraser Property

As such, CGS-CIMB analyst Lock Mun Yee sees this as a “strategically positive” transaction, and said FPL will be able to “unlock its  investment in a valuable completed mall portfolio in Singapore, deleverage its balance sheet and gain a land parcel for future development.” 

She maintains her “add” call on FPL, with an unchanged target price of $1.70.

FPL indicated that it expects to generate a net gain of $42.9 million from the sale of its stake in ARF.

Assuming the change of use or rezoning of the land use for Bedok Point to ‘residential with commercial on first storey’ will be approved, and the land lease can be topped up to 99 years subject to payment of lease renewal premium, Lock said this purchase will likely further replenish FPL’s medium-term residential landbank and launch pipeline. 

Currently, this includes Seaside Residences (92.6% sold as at March 20220), Rivière (11.4% sold) and recent purchase of an executive condominium site in Fernvale Lane. In the meantime, the 92% occupied Bedok Point would continue to generate some recurring rental income.

As at 1.44 pm, shares of FCT were trading at $2.72 with a dividend yield of 4.2% from PhillipCapital, while FPL traded at $1.18, with a dividend yield of 5.17%.