SINGAPORE (Oct 24): OCBC Investment Research is maintaining its “hold” call on Frasers Centrepoint Trust, with a higher target price of $2.75, some 2.2% higher than the previous target price of $2.69. 

On the whole, Frasers Centrepoint Trust (FCT) appeared to have had a solid 4Q19. 

On Wednesday, the REIT’s manager reported a distribution per unit (DPU) of 2.913 cents for the quarter, a 1.8% increase from a year ago. This translated to a full-year DPU of 12.07 cents, up 0.5% from FY18. 

Notably, distributable income saw a 17.9% spike to $30.4 million due to additional contributions from FCT’s share in PGIM Real Estate Asia Retail Fund (PGIM ARF) and Sapphire Star Trust (SST). However, marginal declines of 0.5% and 0.1% were noted in other financial metrics such as gross revenue and net property income respectively.

See: Frasers Centrepoint Trust posts 1.8% increase in 4Q DPU to 2.913 cents

An increase in FCT’s DPU figure for the quarter indicates that the REIT has successfully managed to raise its DPU for each of the 13 years since its listing. 

“FCT has established an enviable track record of delivering positive DPU growth every year since its listing in July 2006, with a compounded annual growth rate (CAGR) of 5.5%,” says the research team at OCBC Investment Research in a Wednesday report. 

The team also highlighted that FCT’s 4Q19 results were within their expectations. And looking ahead, analysts opine that the REIT is “set for another year of growth”.

The research team firmly believe that positive rental reversions can be expected from FCT, especially since occupancy remained firm at 96.5%, despite a marginal dip of 0.3 percentage points q-o-q mainly attributable to the slight drag from Anchorpoint. 

“Anchorpoint’s occupancy fell to 79% due to a change in anchor tenant from a supermarket operator to MR.DIY, coupled with the closure of the food court for renovation. Post the quarter end, the two tenants have commenced operations and overall portfolio occupancy improved to 97.2%,” says the research team. 

Yet the outlook remains favourable for FCT, as rental reversions in the quarter and FY19 rose 3.9% and 4.8% respectively. Similarly, shopper traffic grew 8.9% for the quarter. 

“FCT’s other larger malls, Northpoint City North Wing; Changi City Point and Waterway Point, registered tenants’ sales growth of between 2% and 6%,” says the team. 

Analysts also note that although FCT’s gearing ratio had increased to 32.9% at the end of 4Q19 from 23.5% as at 3Q19 owing to acquisitions of Waterway Point and PGIM ARF, it is still at what they term a “healthy level”. 

“Looking ahead, we expect another year of growth for FCT, driven by organic growth and a full-year contribution from its Waterway Point and PGIM ARF acquisitions,” says the research team. 

See: Frasers Centrepoint Trust acquires 17.1% stake in PGIM Real Estate AsiaRetail Fund for $342.5 mil

See: Frasers Centrepoint Trust raises stake in Waterway Point to 40%

According to OCBC, some macroeconomic conditions could pose a threat to FCT in the near term. These include the dampening of consumer sentiment, and a potential increase in borrowing costs for FCT on the back of rising interest rates. 

As at 3.08pm, units in Frasers Centrepoint Trust are trading 3 cents higher at $2.73. This translates to a price-to-earnings (PE) ratio of 21.0 times and a dividend yield of 4.85% for FY20F according to OCBC valuations.