• 1H25 DPU of 6.054 Singapore cents was 0.5% higher YoY, in line with our expectations and formed 49% of our FY25e forecast. NPI grew 7.3%, driven by higher rents at Tampines 1 following AEI completion and stronger rents across the portfolio. Excluding Tampines 1 and the divestment of Changi City Point, 1H25 NPI was up 1.6% YoY.
• Portfolio occupancy remained high at 99.5%. 1H25 shopper traffic and tenants’ sales saw healthy YoY growth at +1% and +3.3%, respectively. Rental reversions were strong at +9% (FY24: +7.7%), supported by a 13.3% rent increase at Tampines 1 following the completion of its AEI. The placement and preferential offering to fund the proposed acquisition of Northpoint City South Wing were 4x and 1.2x oversubscribed, respectively, raising S$421mn.
• We downgrade FCT to ACCUMULATE from BUY with an unchanged TP of S$2.44 following recent share price performance. We trim our FY25e/26e DPU estimates by 1%/3%, factoring in the enlarged unit base from the equity fund raising, a three-month contribution from Northpoint City South Wing in the last quarter of FY25e, and occupancy disruptions at Hougang Mall due to ongoing AEI. We expect a healthy mid-single-digit positive rental reversion in FY25e, supported by limited upcoming retail supply and a low occupancy cost of <16%. The share trades at an FY25e DPU yield of 5.4%. FCT remains relatively resilient in an economic slowdown due to its suburban mall portfolio anchored by essential services.

• No financials were provided in the 1Q25 business update. Retail portfolio occupancy remained high at 99.5% (4Q24: 99.7%).
• 1Q25 shopper traffic and tenants’ sales registered healthy YoY growth at +2.7% and +2.5%, respectively. Rental reversions remained strong, similar to FY24’s +7.7%. The AEI at Hougang Mall has achieved c.50% pre-commitment and the Mall continues to operate during the AEI. FCT targets a 7% ROI on a S$51mn Capex for this project.
• Upgrade to BUY with an unchanged TP of S$2.44 due to the recent share price weakness. Our estimates remain unchanged. We expect a healthy c.5% positive rental reversion for FY25e, supported by limited retail supply in the coming years. Share price catalysts include accretive AEIs and the acquisition of Northpoint City South Wing. The share trades at an FY25e DPU yield of 5.8%.

• 2H24/FY24 DPU of 6.02/12.04 Singapore cents was unchanged/0.9% lower YoY, in line with our expectations and formed 50%/99% of our FY24e forecast. 2H24/FY24 NPI was down 0.6%/4.6% YoY but excluding the divestment of Changi City Point and the lower contribution from Tampines 1 due to its AEI works, NPI was 4.7%/3.4% higher YoY.
• Retail portfolio occupancy remains high at 99.7%. Rental reversions for FY24 were robust at +7.7% (FY23: +4.7%). In FY24, shopper traffic and tenants’ sales were up 4.2% and 1.2% YoY, respectively. Tenants’ sales are now at 20% above pre-COVID 2019 levels. The AEI at Tampines 1 was completed on schedule with a return on investment exceeding the 8% initial target. Portfolio valuation rose 1.2% YoY to S$7bn with unchanged cap rates.
• Maintain ACCUMULATE with a higher DDM TP of S$2.44 (previously S$2.38) as we roll forward our forecasts. We lower our FY25e/26e DPU estimates by 1% to reflect partial downtime at Hougang Mall from the planned AEI. We expect c.5% positive rental reversion for FY25e supported by the low occupancy cost of 16% that averaged 17% pre-pandemic. Share price catalysts include more accretive acquisitions and lower-than-expected interest costs. The share trades at an FY25e DPU yield of 5.4%.

• 1H24 DPU of 6.022 Scts was 1.8% lower YoY, in line with our expectations. Gross revenue/NPI fell 7.2%/8.4% YoY due to the divestment of Changi City Point (CCP) in Oct 23, and ongoing AEI work at Tampines 1 (T1). Excluding these factors, gross revenue/NPI would have risen 2.9%/2.1% YoY.
• 1H24 retail portfolio occupancy was high at 99.9%, with portfolio rental reversions at +7.5%. 2Q24 shopper traffic and tenants’ sales were up 8.1% and 4.3%, respectively. This was an improvement from 1Q24 shopper traffic growth of 3.1% and tenants’ sales decline of 0.7% YoY.
• Maintain ACCUMULATE, with an unchanged DDM TP of S$2.38. We expect 7% positive rental reversion for FY24e, supported by the low occupancy cost of 15.5%. Share price catalysts include more accretive acquisitions and lower-than-expected interest costs. The share trades at an FY24e DPU yield of 5.6%. There is no change in our estimates.

The Positives

+ 2Q24 retail portfolio occupancy remained almost full at 99.9% (unchanged QoQ). Occupancy was at least 99% across all the malls. 1H24 rental reversion of +7.5% exceeded our expectations, and it was above 1H23 rental reversion of +4.3%. We expect this healthy positive rental reversion trend to continue for the remaining 14% of leases (by GRI) that expire in FY24.

+ Improvements in tenants’ sales and shopper traffic. 2Q24 tenants’ sales and shopper traffic were 4.3% and 8.1% higher YoY, respectively. Portfolio shopper traffic is now only 2% below pre-COVID levels, while tenant sales are c.20% higher than pre-COVID levels. We expect tenants’ sales to remain robust, supported by the various government handouts to Singapore residents in 2024.

+ All-in cost of debt improved 10bps QoQ to 4.2%, as FCT used the proceeds from the divestments of Changi City Point and interest in Hektar REIT to pay off some of the higher-cost debt. Aggregate leverage rose 1.3%pts QoQ to 38.5% as loans were drawn down to finance the increased stake in NEX and the Tampines 1 AEI. 68.5% of debt is hedged to a fixed rate. FCT has no debt expiring in FY24, and its ICR is 3.26 times. FY24e all-in cost of debt is expected to be low 4%.

The Negative

- nil

• No financials were provided in the 1Q24 business update. Retail portfolio occupancy increased 1.5ppts YoY and 0.2ppts QoQ to 99.9%, with rental reversions exceeding FY23’s +4.7%.
• DPU-accretive acquisition of an additional 24.5% stake in NEX, with further upside potential if tax transparency is achieved.
• Maintain ACCUMULATE; DDM TP raised from S$2.29 to S$2.38. We increase our FY24e-26e DPU estimates by 0.4-1% after accounting for the acquisition. We expect c.5% positive rental reversion for FY24e, supported by the low occupancy cost of 15.5% post-acquisition. Catalysts include more accretive acquisitions and tax transparency treatment for FCT’s stake in NEX. The current share price implies a FY24e DPU yield of 5.2%.

The Positives

+ Retail portfolio occupancy is almost full at 99.9% (+1.5ppts YoY; +0.2ppts QoQ). Management guided that rental reversions for the quarter were above FY23’s +4.7%, and we expect this positive rental reversion trend to continue for the 20.3% of leases (by GRI) that expire in FY24.

+ Gearing improved from 39.3% to 37.2%, after using the proceeds from the divestments of Changi City Point and interest in Hektar REIT to pay off some debt. The all-in cost of debt increased 20bps QoQ to 4.3%, and the proportion of fixed-interest rate borrowings stands at 63.4%. Green loans now account for 72.5% of total borrowings. FCT has no debt expiring in FY24.

The Negative

- Tenant sales were down 0.7% YoY in 1Q24 due to several key anchor tenants undergoing renovations, and from a higher base in 2023. Excluding this, it was up 1.1% and was 18% above pre-COVID levels. Portfolio shopper traffic was 3.1% higher YoY, and F&B continues to be the key demand driver. Occupancy cost remains healthy at 15.5%.

• 2H23/FY23 DPU of 6.02/12.15 Singapore cents was 1.2%/0.6% lower YoY, but in line with our expectations and formed 49%/100% of our FY23e forecast. Retail portfolio occupancy increased 2.2ppts YoY to 99.7% (3Q23: 98.7%).
• FY23 tenants’ sales and shopper traffic improved 7.3% and 24.7% YoY respectively. YTD tenants’ sales averaged c.17% above pre-COVID levels. Retail portfolio valuation rose 0.6% YoY to S$8.74bn with unchanged cap rates.
• Maintain ACCUMULATE, DDM TP lowered from S$2.35 to S$2.29 as we roll forward our forecasts. We have reduced both FY24e and FY25e DPU forecasts by 5% after accounting for the divestments of Changi City Point and FCT’s stake in Hektar REIT. We expect positive rental reversions to remain intact for FY24e, supported by the low occupancy cost of 15.6% and tenants’ sales growth. The current share price implies a FY24e DPU yield of 5.9%.

The Positives

+ Retail portfolio occupancy nearly full at 99.7% (+2.2ppts YoY; +1.0ppts QoQ). Excluding Tampines 1 which is undergoing AEI, occupancy at all nine malls came in at 99% or higher. Rental reversions for the retail portfolio were +4.7% for FY23; and we expect similar rental reversions for FY24e, when 29.3% of leases by GRI will be expiring.

+ Tenants’ sales and shopper traffic continued to grow 7.3% and 24.7% YoY respectively for FY23 indicating robust demand. FY23 tenants’ sales averaged c.17% above pre-COVID levels. Improving tenants’ sales should lower occupancy costs further (currently at 15.6% and 6-year lows), and this should support FCT’s ability to raise rents.

+ Retail portfolio valuation increased by S$52.7 million, or 0.6%, to S$8.74bn with unchanged cap rates. This suggests that suburban retail malls in Singapore continue to exhibit resilience despite rising interest rates. The below-historical-average and low retail supply of 1.21mn sq ft through to 2025 makes up only 2.4% of the current private retail stock, and this is expected to support valuations and rental rates going forward.

+ No refinancing risks in FY24. After S$353.5mn, or 16%, of total debt that was originally due in FY24 has been refinanced to FY29, there are no more refinancing requirements in FY24.

63% of total debt has been hedged to fixed rate, and the YTD all-in cost of debt increased 10bps QoQ to 3.8%. We expect the all-in cost of debt to increase to above 4% in FY24e. ICR remains healthy at 3.47x. Gearing, currently at 39.3%, is expected to drop to 36.1% on a pro forma basis assuming the net proceeds from the divestment of Changi City Point and interest in Hektar REIT are used to repay certain debts.

The Negative

- Higher operating costs from higher energy and water prices, as well as higher manpower costs, will likely eat into NPI margins in FY24e. We expect NPI margins to drop from 71.8% in FY23 to 70.6% in FY24e.

• No financials provided in this business update. Retail portfolio occupancy increased 1.6ppts YoY to 98.7% (1H23: 99.2%).
• Tenant sales and shopper traffic improved 5% and 16% YoY respectively. YTD tenant sales averaged c.16% above pre-COVID levels.
• Maintain ACCUMULATE, DDM TP unchanged at S$2.35. Catalysts include stronger than forecast rental reversions and accretive acquisitions. The current share price implies a FY23e DPU yield of 5.6%.

The Positives

+ Retail portfolio occupancy remained high at 98.7% (+1.6ppts YoY; -0.5ppts QoQ). The lower occupancy QoQ was largely due to a 6.4ppt drop in occupancy at Changi City Point from 99% to 92.6%. This was mainly transitionary vacancies as FCT looks to reposition the mall by bringing in popular brands such as Coach. Excluding Tampines 1 which is undergoing AEI, occupancy at the eight malls came in at 92.6% or higher, with six malls having an occupancy of 98.6% or higher. The recently acquired NEX, in which FCT holds a 25.5% stake, has a committed occupancy of 100%. Only 4.2% of leases by GRI are up for renewal for the rest of this financial year.

+ Tenant sales and shopper traffic continued to grow 5% and 16% YoY respectively in 3Q23 indicating robust demand. YTD tenants’ sales averaged c.16% above pre-COVID levels. Trade sectors that performed well were F&B, fashion and accessories, electronics, and beauty. Essential trades like supermarkets and healthcare are still performing well above pre-COVID levels but are growing at a slower pace from the higher base in 2022.

The Negative

- Gearing increased from 39.6% to 40.2%, and the proportion of fixed interest rate borrowings decreased from 76.4% as at 1H23 to 63.0%. The YTD all-in cost of debt increased 10bps QoQ to 3.7% after refinancing all loans due in FY23. FCT has collaborated with OCBC on its green loan offering with carbon credits and the proceeds from this loan will be used to refinance debt that is expiring in FY24. Green loans account for c.49.8% of total borrowings (Mar23: 37.9%).

Outlook

Improving tenant sales should lower occupancy costs further (currently below 16% and 5-year lows), and this should support FCT’s ability to raise rents. Inorganic growth opportunities include the acquisition of the sponsor’s pipeline of assets such as the 24.5% effective interest in NEX and Northpoint City South Wing.

AEI works have commenced at Tampines 1 in 2Q23 and is on schedule for completion in 3Q24. The mall continues to operate as works are staged and more than 90% of AEI spaces have been pre-committed to date.

Maintain ACCUMULATE, DDM TP unchanged at S$2.35

Catalysts include stronger than forecast reversions and accretive acquisitions. Risks include a slowdown in retail sales. The current share price implies a FY23e DPU yield of 5.6%.

• 1H23 DPU of 6.130 Singapore cents (-0.1% YoY) was in line and formed 51% of our FY23e forecast.
• All portfolio properties achieved higher revenue and NPI YoY, supported by higher atrium income and rent growth. Retail occupancy reached a high of 99.2%; tenant sales and shopper traffic improved 9.2% and 35.3% YoY respectively.
• Maintain ACCUMULATE, DDM TP increased from S$2.31 to S$2.35 as we raise our FY23e-FY25e DPU estimates by 1-2% on the back of higher portfolio occupancy. Current share price implies a FY23e DPU yield of 5.5%.

The Positives

+ Retail portfolio occupancy improved 0.8%-point QoQ to 99.2%, mainly due to the backfilling of the anchor cinema space at Century Square, taking its occupancy from 88.7% to 96.8%. Occupancy at all nine malls came in at above 96.8%, with five malls having an occupancy of 99% or higher. 1H23 rental reversions for the retail portfolio were +1.9%, up from +1.5% in FY22. After starting FY23 with 27.6% of leases (by GRI) expiring in the year, 11.4% remain for the rest of this financial year. As a reflection of the strong underlying demand, about 16.2% of leases (by GRI) have been renewed in 1HFY23, with 11.4% yet to be renewed by this FY.

+ Tenant sales and shopper traffic grew 9.2% and 35.3% YoY, indicating resilient retail sales. However, we expect tenant sales growth to moderate going forward due to the increase in Goods and Services Tax rate and a slowdown in consumer spending. 

The Negative

- Gearing increased from 33.9% to 39.6%, due to the increase in bank borrowings to finance the acquisitions of the effective 25.5% stake in NEX and the additional 10% stake in Waterway Point which were completed in February 2023. However, the proportion of fixed interest rate borrowings increased from 73.2% as at 1Q23 to 76.4%, and the all-in cost of debt increased only 10bps QoQ to 3.6%. FCT indicated that it has secured financing to refinance all borrowings due in FY23 (17.7% of total), which we think is likely at above 4%.

• No financials are provided in this business update. Retail occupancy improved 1.2% YoY to 98.4%. Tenant sales and shopper traffic improved 13.4% and 38.3% YoY respectively.
• Frasers Centrepoint Trust and its sponsor, Frasers Property, announced the joint acquisition of 50% interest in NEX at an agreed property value of S$2,077.8 million on a 100% basis, in line with appraised value.
• Maintain ACCUMULATE, DDM TP (COE 6.90%) lowered from S$2.38 to S$2.31. We trim our FY23e-FY25e DPU estimates by 6-8% after factoring in the NEX acquisition and higher borrowing costs. The current share price implies a FY23e DPU yield of 5.5%.

The Positives

+ Retail portfolio occupancy improved 0.9% QoQ to 98.4%, aided by Century Square (+1.9%), Changi City Point (+4.1%), White Sands (+1.9%) and Hougang Mall (+1.6%). Leases signed in the quarter were at positive rental reversions. Occupancy at eight of their nine malls came in at above 97.8%. Leasing negotiations are ongoing to backfill the anchor space (~8% NLA) at Century Square left by Filmgarde.

+ Tenant sales and shopper traffic grew 13.4% and 38.3% YoY, averaging 116% and 82% of pre-pandemic levels for the quarter, respectively. However, we expect tenant sales growth to moderate to single digits going forward due to the increase in Goods and Services Tax and a slowdown in consumer spending. 

The Negative

- High cost of debt. All in cost of debt for 1Q23 increased 50bps QoQ to 3.5%. FCT’s 73% of debt hedged to fixed rate (Sep 22: 71%) is on the lower end compared to most peers. About 46% of debt matures in FY23-FY24 and is likely to be refinanced at above 4%.

The Acquisition

• FCT and its sponsor, Frasers Property, announced the joint acquisition of a 50% stake in NEX. Post-acquisition, FCT will hold a 25.5% interest while Frasers Property will hold a 24.5% interest.
• The purchase consideration for FCT’s 25.5% stake, estimated to be S$340mn based on the adjusted net asset value of the trust of S$1,305mn, is in line with its latest valuation of S$2,077mn. FCT will fund this by taking on a 3-year debt with an estimated all in interest cost of 4.3%.
• The deal is 0.52% DPU accretive on a pro-forma basis assuming full debt funding, with a post-acquisition gearing of 38.5%.
• We think NEX is a good strategic fit for FCT’s portfolio as it is one of the largest suburban retail malls in Singapore with excellent connectivity to public transport. It also has a committed occupancy of 99.9% and a remaining lease period of 85 years.

Outlook

FCT announced a S$38mn asset enhancement initiative (AEI) for Tampines 1 where NLA from lower yielding floors will be transferred to B1, L1 and L2 as well as an additional c.8000 sq ft of NLA from various bonus GFA schemes. Management estimated a ROI of 8% on the back of higher rents and asset valuation gains. FCT’s operating metrics continues to improve, but its short debt maturity and low interest hedge ratio will offset these gains going forward.

Maintain ACCUMULATE, TP lowered from S$2.38 to S$2.31

FY23e-FY25e DPU estimates are trimmed by 6-8% after factoring the NEX acquisition and higher borrowing costs. The current share price implies a FY23e DPU yield of 5.5%.