SINGAPORE (Jan 23): DBS Group Research is maintaining its “buy” call on Frasers Centrepoint Trust (FCT) with $2.20 target price, given that the REIT offers investors a steady DPU profile while many other S-REITs are expected to face declining DPUs over the next couple of years due to the slowing Singapore economy.

This is made possible by FCT’s conservative strategy of paying the majority of its management fees in cash, which enables FCT to increase payment of fees in units to sustain DPU, says analyst Derek Tan in a report out today.

(See also: Fraser Centrepoint Trust reports 0.7% rise in 1Q DPU to 2.89 cents)

FCT also has near-monopoly of shopping malls in the north, says Tan. Northpoint and Causeway Point together contribute 70% of FCT’s Net Property Income (NPI).

While it is still several months away until Northpoint completes its asset enhancement initiative (AEI) in Sept 2017, Tan believes strong rental reversion at Causeway Point will support earnings and cushion any pressure from any decline in occupancy rates.

The REIT has also seen a significant reduction in cost of debt, says Tan. The manager had reduced the percentage of borrowings hedged into fixed rates from 74% to below 60%, in mid-2016 to benefit from their view that interest rates may stay low for an extended period. As such, DBS has also reduced its cost of debt assumptions to account for lower interest expenses in the near term.

Shares of FCT are up 1 cent at $1.98.