Brokers' take: DBS raises target price for FCT on growth in suburban malls

Published Mon, Mar 22, 2021 · 01:20 PM

DBS Research Group has raised its target price on Frasers Centrepoint Trust (FCT) to S$3 while reiterating its "buy" call, on expectations of growth in suburban malls after Covid-19.

In a Monday report, DBS stated that retail sales in the fourth quarter of FY2020 were just 3 per cent below normalised levels. It believes this momentum can be sustained and foresees the Phase Three reopening of the economy boosting the real estate investment trust's (Reit) performance, especially in the F&B space.

The research team noted in a report earlier this year that heartland malls outshone central and Orchard malls for most part of 2020 due to their focus on essential services and close proximity to residential catchments. Work-from-home arrangements, which are likely to outlast the Covid-19 pandemic, will also help prevent consumer spending patterns gravitating back to malls in the central region.

FCT, whose portfolio consists mainly of shopping malls in suburban areas in Singapore, is expected to benefit accordingly and "deliver a potent mix of growth and stability in the medium term". According to the report on Monday, its distribution per unit (DPU) in FY2021 is projected to be 6 per cent higher than pre-Covid levels.

However, the report also noted that the small but present risk of a second wave of Covid-19 cases in Singapore could curb consumer spending.

In February, FCT acquired a 17.8 per cent stake in PGIM Real Estate Asia Retail Fund Ltd (PGIM Real Estate) for S$356.4 million, which DBS described as a "new era of growth" and accounted for in its revised estimates.