Brokers' take: CGS-CIMB raises Frasers Centrepoint Trust target price to S$2.75

CGS-CIMB slightly raised the target price of Frasers Centrepoint Trust (FCT) to S$2.75 from S$2.73 and maintained its "add" rating, after adjusting for the trust's distribution per unit (DPU) estimates for the financial years 2022 to 2024.

The new target price, derived from a dividend discount model, presents a potential upside of 13.2 per cent from the counter's last closing price of S$2.43.

FCT's unit price was up 1.2 per cent or S$0.03 to S$2.46 as at 2.55 pm on Thursday.

"We continue to like FCT for its pure exposure to suburban malls, which should enable it to outperform peers," said CGS-CIMB analyst Lock Mun Yee in a research report on Wednesday (Apr 27).

On Wednesday, FCT posted a 2.3 per cent rise in distribution per unit to S$0.06136 for its first half ended Mar 31, 2022, from S$0.05996 a year ago, as the real estate investment trust (Reit) saw an improved operating and financial performance in the period.

The increase in the amount of dividends a unitholder receives comes despite FCT retaining S$4.8 million of its taxable income available for distribution to unitholders in the first half of the year.

The chief executive officer of FCT's manager, Richard Ng, had said that the retention was for “prudence” as the latest easing of Singapore’s Covid-related safe management measures had not yet been announced when the terms of the distribution were being worked out.

The retained amount is expected to be distributed in the second half.

CGS-CIMB report said that the distribution for H1 is within its expectations at 50.5 per cent of its FY2022 forecast.

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It slightly lowered its DPU estimates by 0.02 per cent for FY2022 and by 0.05 per cent for FY2023, assuming that 100 per cent of FCT's distributable income is paid out.

However, this did not result in a material change in the amount unitholders are expected to receive. They are estimated to still get 12.56 Singapore cents in FY2022 and 12.78 cents in FY2023.

As there are still 15.1 per cent of leases to be renewed for FY2022, and with a healthy occupancy cost of 16.2 per cent at the end of H1, CGS-CIMB said that FCT is likely to achieve positive rental reversions going forward. This refers to an increase in rental rates when leases are renewed.

"(The) relaxation of Covid-19 measures in Singapore from Apr 26, 2022 should also provide some tailwinds for its Singapore retail portfolio performance," the report said.