Frasers Centrepoint Trust - Increasing stake in NEX

5 Feb 2024
  • 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%.

About the author

Darren Chan
Research Analyst
PSR

Darren has over three years of experience on the buy-side as a fund manager. During his time as fund manager, he has managed multiple funds and mandates including dividend income, growth, customised, Singapore focused and regionally focused funds. He graduated from the University of London with a First-Class Honours degree in Banking and Finance.

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