SINGAPORE (July 18): RHB is maintaining its “buy” call for Frasers Centrepoint Trust (FCT), with a target price of $2.22 on the back of strong rental reversions in 3QFY16. The research house also likes FCT malls for its stable and resilient rental income as investors continue to hunt for yield instruments amidst increasing uncertainties.

According to the report dated July 18, the REIT posted a 0.1% increase in DPU on a y-o-y basis in 3QFY16. DPU remained stable despite a 5.1% decline in net property income (NPI) for the quarter, as FCT distributed $2.1 million additional cash retained in previous quarters.

In addition, the REIT also reported a 10.9% positive rental reversion for 9MFY16, offsetting the rising vacancies arising from asset enhancement initiative (AEI) works at its Northpoint shopping mall, says RHB analyst Vijay Natarajan.

The research house also noted that the mall achieved a 82% occupancy rate in the quarter, which came in higher than the management’s expectation of 73%.

Occupancies are expected to dip slightly in 4QFY16 as works progress, but once completed in Sep 2017, the mall will benefit from a seamless connection with the upcoming retail component of Northpoint City, says Natarajan. He expects the return on investment on refurbishment works to be in the region of 10%.

The research house also notes that occupancy at FCT’s Changi City Point mall declined 8% to 81.3% in 3QFY16 due to the longer fitting period of an incoming anchor tenant but expects rentals to move back to 90% in another 2-3 months once the tenant moves in.

Moving forward, FCT’s relatively low gearing of 28.5% presents “a headroom of approximately $500 million for fully debt funded acquisitions,” says Natarajan. He believes that Waterway Point, one of six malls in Frasers Centrepoint’s portfolio, could be a good fit in the near term, considering a huge catchment population and lack of strong competitors in the region.

As at 3.17pm, FCT was up 1.4% at $2.15 a unit.