Suburban malls to drive FCT's resilience amidst slowing retail market

It has delivered positive DPU growth every year since its listing in July 2006.

Frasers Centrepoint Trust’s (FCT) has the potential to double its assets under management (AUM) in the long-term with a resilient portfolio comprised of suburban malls, analysts noted.

All of FCT’s properties are suburban malls, which both DBS Group Research and OCBC Investment Research noted as the primary reason for its track record of delivering positive distribution per unit (DPU) growth every year since its listing in July 2006, with a CAGR of 5.5%. Suburban malls are viewed to be more defensive and resilient in nature given their dominant positions in their localities, said OCBC.

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“All of FCT’s properties are suburban malls, which have proven to be resilient across market cycles and in our view, will stand out amidst a more modest growth outlook,” added DBS Group Research.

FCT’s moves to acquire stakes in PGIM’s AsiaRetail fund and Waterway Point will also drive the REIT’s forward distributable income growth of 6%, DBS analysts noted. They also see a potential upside if FCT executes on more acquisitions, including the possibility of doubling its AUM in the next few years.

Also read: FCT acquisitions to boost growth: analyst

Portfolio occupancy was also healthy at 96.5%. Anchorpoint’s occupancy fell to 79% in Q4 from 95% in Q3, although OCBC analysts noted that this was due to a change in anchor tenant from a supermarket operator to MR.DIY, coupled with the closure of the food court for renovation. Post-quarter, the two tenants have commenced operations and overall portfolio occupancy has improved to 97.2%.

Changi City Point’s (CCP) and Causeway Point’s occupancies also dipped to 95.5% and 97%, respectively, although these were said to be transitory in nature. In contrast, Bedok Point built on its positive momentum from a quarter ago and achieved a 95.7% occupancy rate..

FCT also registered healthy tenant sales growth of c.2-6% in its key properties, whilst shopper traffic increased 8.9% YoY.

“Shopper traffic also increased 8.9% YoY, led by Northpoint City. Its key properties of Northpoint City North Wing, Changi City Point and Waterway Point registered healthy tenant sales growth of c.2.0-6.0%. This reaffirms our view that FCT’s portfolio, by virtue of its location and tenant positioning, continues to attract healthy traffic and sales, despite the ongoing narratives of disruption from e-commerce,” DBS analysts added.

Analysts expect FCT’s DPU to grow 4.3% in 2020, supported by full-year contributions from PGIM’s AsiaRetail fund and Waterway Point.