Frasers Centrepoint Trust: Poised for Continued Growth and Strategic Enhancements

July 26, 2024

Frasers Centrepoint Trust

Frasers Centrepoint Trust (SGX: J69U) or FCT in short, continues to demonstrate robust performance, maintaining an impressive occupancy rate of 99.6% in the third quarter. With occupancy costs at an efficient 15.6%, below the historical range of 16-19%, FCT is well-positioned to capitalize on positive lease reversions expected in FY25. The trust’s strategic asset management and the sustained demand for its prime suburban mall spaces suggest a strong trajectory for organic growth.

Unlocking Value through Strategic Initiatives

FCT is actively enhancing its portfolio with promising asset enhancement initiatives (AEI) at NEX and the anticipated benefits from tax transparency. These efforts are expected to unlock significant value, strengthening FCT’s market position and financial performance.

Navigating Challenges with the JB-Singapore RTS

The upcoming Johor Bahru-Singapore Rapid Transit System (RTS) is anticipated to be a double-edged sword. Slated to commence by the end of 2026, the RTS will enhance connectivity between JB’s Bukit Chagar station and Woodlands North MRT station in Singapore, closely located to FCT’s Causeway Point (CWP). While there are concerns about potential retail consumption shifts to Johor Bahru, FCT is strategically addressing these through tenant remixing and enhanced engagement initiatives. The trust is also capitalizing on increased residential developments in the Woodlands area to boost footfall and spending at CWP. Additionally, interest from Malaysian retailers looking to enter the Singapore market presents new leasing opportunities.

Quarterly Business Update

In Q3 2024, FCT reported a slight decrease in occupancy to 99.7%. However, the trust signed leases representing 9.7% of its gross rental income during the quarter. Although specific reversion figures were not disclosed, management indicated that the trend aligns with the positive 7.5% reversions observed in the first half of FY24. FCT’s focus remains on normalizing occupancy costs to historical levels while enhancing tenant sales through strategic tenant restructuring. Remarkably, tenant sales this quarter achieved 121% of the pre-Covid levels seen in Q3 FY19.

Financial Stance and Forward-Looking Strategies

The cost of borrowing remained stable at 4.2% during the quarter, with gearing increasing marginally from 38.5% to 39.1%. FCT intends to increase the proportion of fixed-rate borrowings, currently at 67.2%, to mitigate interest rate volatility. The trust also expects a slight increase in asset valuations driven by positive reversions and higher net property income (NPI).

Investment Outlook

FCT’s strategic management and the appeal of its suburban malls position it well for potential re-rating. Key catalysts for future growth include stronger-than-expected lease reversions and strategic acquisitions, particularly the potential acquisition stakes in Waterway Point and NEX. Risks include a downturn in consumer spending which could impact turnover rents and tenant sentiment, potentially affecting FCT’s ability to maintain positive reversions.

Compelling option for stability and growth in the retail REIT sector

 FCT’s proactive management and strategic enhancements underscore its resilience and growth potential in the dynamic retail market. With its well-rounded strategy and ongoing enhancements, Frasers Centrepoint Trust remains a compelling choice for investors seeking stability and growth in the retail real estate sector.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of the company mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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