The recent inclusion of Frasers Centrepoint Trust (SGX:J69U), commonly referred to as FCT, in the Straits Times Index (STI) represents a significant milestone, signaling its growing influence and stability in Singapore’s Real Estate Investment Trust (REIT) market.
FCT owns nine retail malls and an office building in suburban Singapore. The portfolio spans approximately 2.9 million square feet of net lettable area and has over 1,800 leases.
Here are five key reasons for investors to put FCT on their watchlist.
1. Attractive dividend for income investors
FCT boasts an attractive dividend yield of 5.38%, surpassing its impressive five-year average of 4.12%. This consistent dividend performance offers a dependable source of income, making it a compelling choice for investors focused on steady returns.
2. Resilient and attractive assets
The trust primarily invests in retail properties, including well-known malls such as Causeway Point, Northpoint City, and Waterway Point. These assets generate rental income, contributing to consistent dividends.
3. Strong balance sheet
FCT has a strong balance sheet with a gearing ratio of 37.2% as of Q1 2024. Even after the acquisition of its sponsor’s 24.5% effective stake in NEX for S$521.3 million, FCT’s gearing ratio is likely to be at 37.8%. The strategy to tap on private placement financing for its acquisition allows FCT to maintain its gearing ratio at a comfortable margin below the psychological investor threshold of 40% with about S$120 million in debt headroom.
4. High retail occupancy for its malls
FCT’s retail spaces continue to demonstrate robust demand, boasting an impressive 99% occupancy rate across their malls. The exception is Tampines 1, which is currently enhancing its assets. This high occupancy reflects a strong and resilient demand for FCT’s urban mall locations.
5. Attractive valuation with a strong track record
FCT is currently trading with a price-to-book ratio of 0.946, suggesting that its stock price is relatively lower than its book value. This could indicate undervaluation or potential investment opportunities. Aside from that, FCT has a return on equity (ROE) of 5.34%, which is the third highest among its peers. This indicates that FCT is relatively efficient in utilising shareholders’ equity to generate profits compared to most of its competitors.
Conclusion: The Investment Case for FCT
In conclusion, FCT’s induction into the Straits Times Index underscores its escalating prominence and the resilience it brings to the table in the Singapore REIT sector. Its consistent performance and potential for growth make it a noteworthy candidate for portfolio diversification. However, investors should also be cautioned of its downside risks including the slowdown in consumer spending, which may affect FCT’s ability to command positive rental reversion.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of the company mentioned.
