Introduction to Frasers Centrepoint Trust

Frasers Centrepoint Trust (FCT) stands as a resilient player in the real estate investment trust (REIT) sector, focusing on income-producing properties primarily for retail purposes. Anchored by a portfolio of quality suburban malls in Singapore, FCT continues to demonstrate steady fundamentals and proactive asset management. As of January 24, 2025, Maybank Research Pte Ltd reaffirms its BUY recommendation with a dividend discount model (DDM)-based target price (TP) of SGD 2.50, reflecting a 23% upside from the current share price of SGD 2.12.

Operational Strengths and Performance Overview

Nearly Full Occupancy Across Key Assets

FCT’s operational performance underscores its strength in the retail sub-sector. Its portfolio occupancy remains robust at 99.5%, slightly down from 99.7% in the previous quarter. Notably, flagship malls such as NEX, Causeway Point, Northpoint City North Wing, and Waterway Point are fully occupied, reflecting their prime locations and tenant appeal. Smaller malls, including Tiong Bahru Plaza and Hougang Mall, experienced transitional vacancies due to ongoing asset enhancement initiatives (AEIs) and tenant repositioning.

Tenant Sales and Shopper Traffic Growth

Tenant sales grew by 2.5% year-on-year (YoY), driven by proactive asset management and the completion of AEIs at Tampines 1. This outpaces system-wide trends, showcasing FCT’s ability to attract and retain high-performing tenants. Shopper traffic also rose by 2.7% YoY, further cementing the attractiveness of FCT’s malls to consumers.

Prudent Financial Management

Gearing and Debt Costs

FCT maintains a prudent approach to capital management, with gearing recorded at 39.3%, up from 38.5% in the prior quarter due to increased capital expenditure. Debt cost guidance for the fiscal year remains steady at approximately 4.0%, with the interest coverage ratio (ICR) at 3.33x. This financial discipline ensures stability amidst rising borrowing costs.

Asset Enhancements Yielding Returns

Ongoing AEIs, such as the Hougang Mall upgrade, have achieved a 50% pre-commitment rate, with strong leasing interest from retail and food & beverage tenants. Smaller-scale AEIs like the Tiong Bahru Plaza project delivered a 20% return on investment (RoI), highlighting the effectiveness of FCT’s active asset management strategy.

Valuation and Investment Thesis

Maybank Research values FCT using a DDM approach with a discount rate of 6.7% and a medium-term growth rate of 2.0%. The report leaves estimates unchanged, citing limited financial disclosures for the quarter. However, the operational metrics align with expectations. Rent reversions tracking last fiscal year’s +7.7% are a positive indicator, while management commentary suggests potential tenant remixing at Causeway Point to enhance performance further.

FCT’s strategic focus on new home growth, rising median household income, supportive government policies, and proactive asset management positions it well to maintain a resilient financial profile and stable distributions.

Portfolio Composition and Revenue Streams

Asset Distribution

FCT’s SGD 6.7 billion portfolio comprises 10 suburban retail properties and one office asset, totaling 2.5 million square feet of net lettable area (NLA). These properties are strategically located near MRT stations or bus interchanges, enhancing accessibility and foot traffic.

The portfolio’s tenant mix leans heavily towards essential services, including food & beverage, supermarkets, and hypermarkets, which account for approximately 45% of overall NLA and 54% of gross rental income. This trade mix ensures stability even during economic downturns.

Major Properties and Contribution

• Causeway Point: Contributes 21% of asset value.
• Northpoint City North Wing: Accounts for 12% of the portfolio.
• Tampines 1: Represents another 12% share.
• Waterway Point: Adds 10% to the asset base.
• NEX: Comprises 8% of the portfolio.

Risks and Challenges

The report outlines several risks that could impact FCT’s performance:

• Rising borrowing costs, particularly for joint ventures.
• Potential retail sales slowdown and tenant defaults.
• Exposure to dilutive deals that could impact earnings.
• Prolonged economic downturns affecting leasing demand and occupancy rates.

Environmental, Social, and Governance (ESG) Initiatives

Environmental Commitments

FCT has made significant strides in ESG, achieving 100% BCA Green Mark Gold certification or higher for its properties. Five assets, including Tiong Bahru Plaza and Hougang Mall, are rated Platinum. The company has installed solar panels at Tiong Bahru Plaza, generating 147 MWh of renewable energy in FY2023.

Its green loans constitute 55.6% of total borrowings as of September 2023, underscoring its commitment to sustainable financing.

Governance Highlights

The REIT is managed externally by a wholly-owned subsidiary of its sponsor, Frasers Property. Board independence is high, with four out of six members, including the Chairman, being independent. Management fees are competitive, and cumulative remuneration for the key management team has consistently been under 2% of the REIT’s distributable income since FY2018.

Social Contributions

FCT actively engages tenants and communities, promoting sustainability events and workplace safety. Female representation is strong, with 70% of employees and 40% of senior management roles held by women.

Conclusion and Recommendation

Maybank Research maintains its BUY recommendation for Frasers Centrepoint Trust with a target price of SGD 2.50, reflecting the REIT’s strong fundamentals, proactive asset management, and stable financial outlook. With its strategic focus on suburban retail properties and ongoing asset enhancements, FCT is well-positioned to deliver resilient performance and attractive distributions for investors.