Frasers Centrepoint Trust kept at 'buy' by DBS on strategic transformation

Samantha Chiew

SINGAPORE (June 24): DBS Group Research is reiterating its “buy” call on Frasers Centrepoint Trust (FCT) with a higher target price of $2.85, from $2.60 previously.

Currently, all of FCT’s properties are suburban malls, which have shown to be resilient across market cycles.

However, DBS is positive on FCT’s acquisition of stakes in PGIM’s AsiaRetail fund and Waterway Point as this should transform the group’s growth profile entirely.

With its DPU expected to grow at a 2.8% CAGR over FY18-21, FCT will now count among the fastest-growing REITs.

In addition, FCT's potential inclusion in the FTSE EPRA/Nareit Index, which identifies property firms with strong sustainability performance, could also drive a further share price re-rating in the medium term.

“While we anticipate a more balanced rent outlook, we believe the merits of its resilient portfolio, the addition of growth engine Waterway Point and enlarged acquisition pipeline should continue to draw interest to the stock, given volatile times,” says lead analyst Carmen Tay in a Monday report.

To recap, PGIM’s AsiaRetail fund recently completed its divestment of Liang Court mall to CapitaLand and City Developments Limited (CDL) for $400 million.

FCT, which owns an 18.8% stake in PGIM, will recognise divestment gains of 1.1 cents per unit, which unitholders can potentially enjoy.

Both FCT and its sponsor, Frasers Property, owns a total of 66.6% stake in PGIM, just shy of the two-thirds majority required to evoke a change in the asset manager.

Tay believes that this provides an opportunity for FCT to build an additional pipeline of resilient suburban retail assets, apart from those from its sponsor.

These assets are positioned to growing markets, which bodes well for rent reversionary outlook. Other properties that also offer value-maximising opportunities through potential AEIs, revamps and tenant improvement initiatives, can provide an extra layer of growth over the longer term.

And if these materialise, FCT will see its Singapore retail footprint nearly double to 12 malls (excluding Liang Court) and transform its growth profile entirely.

As at 12 noon, units in FCT are trading at $2.55 or 25.1 times FY19 earnings with a distribution yield of 4.7%.