• 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%.