Frasers Centrepoint Trust (FCT)’s operational update on July 20 reported a dip in 1.5 percentage points q-o-q to 94.6% for 3Q20, led by Bedok Point (at -3.7 percentage points q-o-q), and YewTee Point (-2.6 percentage points q-o-q).

The REIT reported that over 95% of tenants under its portfolio have resumed business since Phase 2 of the loosening of the circuit breaker measures on June 19.

Shopper traffic has rebounded to 61.1% of pre-Covid levels in July, which is a slight uptick compared to June, which saw 48.2% of shopper traffic before the Covid-19 outbreak.

DBS Group Research analyst Derek Tan and the research team feel that the weaker occupancy reported was “expected”. The analysts also do not foresee much risk in non-renewals for 4Q20 given the malls’ “commanding position” and dominance in their respective submarkets.

“We expect suburban shopper footfall, which has recovered to a greater extent than central malls, to continue to be resilient,” they say.

However, like FCT’s peers, Tan and the team see that its valuations will be hit by a softer rental growth outlook.

On that, they predict a 1.5%-3.0% drop in valuations at the end of FY20.

As FCT buys a further 12.07% stake into PGIM ARF, Tan and the team have maintained their “buy” call on FCT with an unchanged target price of $2.95, implying a price-to-book ratio of 1.45x, and dividend yield of 4.3% for FY21.

CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee are also positive on the stock for its better-than-expected performance.

Traffic, as well as the number of tenants in essential services in its malls, were also higher than expected.

Eing and Lock have raised FCT’s distribution per unit (DPU) for FY21-22F by 0.4-0.6% to factor in its acquisition in PGIM.

They have also maintained their “add” call, with a higher target price of $2.78, previously $2.49, as they reduce their cost-of-equity (COE) to reflect the better-than-expected outlook.

On the other hand, the analysts at Maybank Kim Eng and RHB are cautiously optimistic as they maintain their “hold” or “neutral” calls on lower occupancies and rental reversions.

Despite a raised target price of $2.45 from $2.30 previously, Maybank Kim Eng analyst Chua Su Tye says he prefers FCT’s peers, CapitaLand Mall Trust (CMT), and Mapletree Commercial Trust (MCT) on the back of slow shopper traffic, weaker occupancies, and slower rental reversions.

RHB analyst Vijay Natarajan feels FCT’s occupancy pressure was “visible” despite the revival in shopper traffic.

Despite the pains of the Covid-19 outbreak, Natarajan expects better support from FCT’s suburban malls due to a “huge catchment population”.

Among retail REITs, he says FCT remains RHB’s large-cap pick.

Natarajan has valued FCT at $2.16, and upped DPU for the REIT by 3-5% for FY20-22F.

As at 3.45pm, units in Frasers Centrepoint Trust were changing hands 1 cent lower, or 0.4% down, at $2.38.