RHB strategy for 2017: What will hold this retail REIT steady amid a dismal outlook?

SINGAPORE (Jan 5): RHB is maintaining its “buy” call on Frasers Centrepoint Trust (FCT) with a target price of $2.22 despite foreseeing a challenging retail outlook for 2017, as the research house is confident in the REIT’s management as well as suburban mall portfolio.

In a Tuesday report, analyst Vijay Natarajan says he expects FCT to make more acquisitions this year in Singapore and in Australia, given its low gearing of 28.3% and hence “healthy headroom for debt”. Potential Singapore targets include Waterway Point, which is one-third owned by its sponsor Frasers Centrepoint Limited.

Following Northpoint shopping centre’s asset enhancement initiatives (AEIs), the analyst highlights how it will have better connectivity to the upcoming Northpoint City mall, and that the management expects double-digit rental reversions once AEI works are fully completed.

“We also see the possibility of opportunistic third-party acquisitions, as smaller players look to exit amid a tough retail climate,” he adds.

Due to increased occupancy at Changi City Point due to the moving in of new tenants such as supermarket giant NTUC FairPrice Finest, Natarajan anticipates increased footfall and higher tenant sales going forward – especially after the expected opening of the Downtown Line MRT “right at its doorstep” in early 2017.  

He also expects FCT’s suburban malls to see mid-single digit rental reversions in FY17, largely due to the trust’s “pro-active management team”.

“About 39.6% of [FCT’s] leases are expiring in the current financial year, with the bulk of it coming from key malls, i.e. Causeway Point and Northpoint, which face relatively less competition and have a huge catchment population,” says the analyst.

As at 10.18am, units of FCT are trading 2 Singaporean cents higher at S$1.94 (RM6.06). — theedgemarkets.com.sg