SINGAPORE (May 27): Suburban retail malls are quickly gaining favour in Singapore, stealing local visitors away from the famed Orchard Road shopping belt. And Frasers Centrepoint Trust (FCT), which currently owns a portfolio of six suburban malls, looks poised to capitalise on this trend.

Already in FCT’s suburban mall portfolio are Causeway Point, Northpoint City North Wing, Changi City Point, YewTee Point, Anchorpoint, and Bedok Point.

The retail REIT has also proposed to acquire the one-third interest in Sapphire Star Trust, which owns the Waterway Point mall in Punggol, from its sponsor Fraser Property for $433 million.

In March, FCT also announced it is raising its stake in PGIM Real Estate Asia Retail Fund, whose assets are primarily suburban retail properties in Singapore.

See: Frasers Property and FCT raise stakes in PGIM Asia retail property fund for $635 mil

The manager of FCT has proposed an equity fund raising to raise gross proceeds of no less than $421.7 million, which will be used to partially finance the proposed Waterway Point acquisition as well as to partially pare down bridging loans related to the acquisition of stake in PGIM ARF.

In particular, analysts have been largely positive about FCT’s proposed acquisition of the 33.3% stake in Waterway Point.

“A highly anticipated and positive move, with FCT’s last sizeable acquisition only back in 2014 (when it acquired Changi City Point),” says Phillip Securities Research analyst Tara Wong.

“We believe there is upside for rental escalation and reversion rates, supported by the recent resilience of fringe retail rents, as well as favourable attributes specific to Waterway Point,” Wong says.

Phillip is keeping its “neutral” call on FCT, but raising its target price by 5 cents to $2.36 on the back of higher distribution per unit (DPU) estimates.

“Waterway Point’s NPI yield of 4.7% is in line with the FCT’s portfolio average, and is poised to match that of its bigger portfolio malls – Causeway Point and Northpoint North Wing – which are currently north of 5%, given that it is still in a stabilisation phase,” says Wong.

The brokerage is raising its DPU estimates for FY19 and FY20 by 0.4% and 2.2% respectively.

Meanwhile, UOB Kay Hian lead analyst Jonathan Koh notes that FCT’s acquisition of stakes in Waterway Point and PGIM ARF will add depth to its specialisation in suburban retail malls.

Causeway Point and Northpoint City North Wing accounted for two-thirds of FCT’s net property income in FY18.

At the same time, Koh believes Causeway Point, FCT’s largest retail mall, could get even stronger as it reaps the benefits of the government’s plans to develop the Northern Gateway and Woodlands Regional Centre.

The government plans to intensify the development of Woodlands Regional Centre, which serves as the strategic centre for the Northern Gateway, under Master Plan 2019.

It is expected to see the creation of some 100,000 jobs in the area, which will encompass Agri-Food Innovation Park, Senoko Food Zone and high-tech farming at Lim Chu Kang.

New infrastructure to be built includes integrated healthcare complex Woodlands Healthcare Campus, a 21.5km expressway linking Woodlands to the CBD, and Woods Square, comprising two office towers and two 4-storey blocks.

“More office buildings will sprout up around Causeway Point, bringing a larger office crowd to the suburban mall during weekdays,” says Koh.

UOB is upgrading FCT to “buy” and raising its target price to $2.71 from $2.32 previously.

“We raise our DPU forecasts by 4.7% for FY19 to factor in the acquisition of 33.3% stake in Waterway Point and 18.8% stake in [PGIM ARF],” Koh says, adding that FCT has delivered 12 consecutive years of growth in revenue, income, net asset value (NAV) and DPU since its IPO in 2006.

Aaaaaas at 1.15pm, units of FCT are trading 0.4% lower at $2.39.

According to UOB valuations, this implies an estimated price-to-earnings (PE) ratio of 18.7 times and a DPU yield of 5.6% for FY19F.