Frasers Centrepoint Trust (FCT): A Strong Buy Recommendation

Frasers Centrepoint Trust (FCT) continues to demonstrate its resilience as a leading suburban retail mall operator in Singapore. With a portfolio of nine retail malls and an office property, FCT’s assets total approximately SGD 7.1 billion. Its suburban malls are strategically positioned near residential areas and transportation amenities, focusing on necessity spending, food & beverage, and essential services.

Key Highlights

• Retail Occupancy: FCT’s retail portfolio maintained a high committed occupancy rate of 99.5% in 1QFY25, though it dipped slightly by 0.2 percentage points quarter-on-quarter due to transient vacancies and ongoing asset enhancement initiatives (AEI).
• Shopper Traffic and Sales: Shopper traffic and tenants’ sales on a same-store basis rose by 2.7% and 2.5% year-on-year. Despite a slight dip in December due to outbound travel, strong footfall in October and November offset this softness.
• Asset Enhancement Initiatives: The AEI at Hougang Mall, with a capital expenditure of SGD 51 million, is expected to yield a return on investment of ~7%. Renovation works will be phased to minimize disruption, though worst-case occupancy could fall to 80% during the AEI period.
• Aggregate Leverage: FCT’s leverage ratio increased to 39.3% from 38.5% as of 30 September 2024. Despite this increase, the debt level is considered manageable, with no refinancing requirements for the rest of FY25. The current cost of debt stands at 4.0%, in line with expectations.
• ESG Initiatives: FCT has demonstrated leadership in sustainability, earning a 5-star rating in the 2024 GRESB Real Estate Assessment for the fourth consecutive year. Initiatives include solar panel installations and the deployment of 36 EV charging points across 12 malls, aligning with Frasers Property’s goal of achieving net-zero carbon by 2050.

Financial Metrics

FCT’s revenue for FY24 was SGD 351.7 million, with a net property income of SGD 253.4 million. The distribution per unit (DPU) for FY24 was 12.04 cents, translating to a dividend yield of 5.7%. While DPU slightly declined in FY23 and FY24 due to rising borrowing costs, the Federal Reserve’s expected rate cuts could provide some relief moving forward.

Investment Recommendation

OCBC Investment Research assigns a BUY rating for FCT, with a fair value estimate of SGD 2.45. The stock’s defensive portfolio of suburban malls and robust operational metrics position it favorably amid uncertain economic conditions. Potential catalysts include asset divestments at above-valuation prices, DPU-accretive acquisitions, and stronger footfall and tenant sales momentum.

Peer Comparison and Analysis

Capitaland Integrated Commercial Trust (CICT)

CICT focuses on integrated commercial properties and offers stable performance. Its FY25E price-to-earnings ratio stands at 17.8, with a price-to-book ratio of 0.9. The trust provides a dividend yield of 5.6% for FY25E, slightly below FCT’s yield. Return on equity (ROE) for FY25E is projected at 5.1%.

Mapletree Pan Asia Commercial Trust (MPACT)

MPACT emphasizes pan-Asian commercial assets. It offers a higher dividend yield of 6.9% for FY25E, making it an attractive option for income-focused investors. However, its price-to-earnings ratio is lower at 15.1, and its price-to-book ratio is 0.7, reflecting a more aggressive valuation compared to peers. ROE for FY25E is estimated at 4.1%.

Starhill Global Real Estate Investment Trust (SGREIT)

SGREIT, specializing in retail and office properties, delivers the highest dividend yield among peers at 7.6% for FY25E. However, its price-to-earnings ratio of 12.1 and price-to-book ratio of 0.7 suggest a more modest valuation. Its ROE for FY25E stands at 5.7%.

Paragon REIT

Paragon REIT focuses on premium retail properties. It offers a dividend yield of 4.7% for FY25E, slightly lower than FCT and other peers. The trust’s price-to-earnings ratio is 19.0, with a price-to-book ratio of 1.0, indicating a premium valuation. Its ROE is projected at 5.1% for FY25E.

Conclusion

Frasers Centrepoint Trust stands out with its strong suburban retail footprint, resilient operational metrics, and commitment to sustainability. While peers like Mapletree Pan Asia Commercial Trust and Starhill Global REIT offer higher dividend yields, FCT’s robust fundamentals and strategic initiatives position it as a compelling investment. With a BUY recommendation and a fair value estimate of SGD 2.45, FCT is well-placed to deliver stable returns for investors in a challenging macroeconomic environment.