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Broker's take: DBS raises target price on FCT, says retail sales rebound may be sustainable

DBS Group Research has raised its target price on Frasers Centrepoint Trust (FCT) to S$3 from S$2.94 previously.

FCT units were trading at S$2.23 as at 1.06pm on Wednesday, up S$0.12 or 5.7 per cent.

In maintaining their "buy" call for the real estate investment trust (Reit), DBS analysts Geraldine Wong and Derek Tan noted that the retail sales rebound seen by FCT's tenants may be sustainable.

"Retail sales in Q4 FY20 narrowed to about 3 per cent below normalised levels and we believe the momentum can be sustained, given that majority of the trades are essential services," Ms Wong and Mr Tan wrote in a research note on Wednesday.

The analysts also expect the Phase Three reopening of the Singapore economy to boost FCT's portfolio performance. In particular, they anticipate the resumption of atrium sales and potentially larger group sizes (from five to eight people) to drive consumption, especially for the food & beverage sector.

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Additionally, DBS is of the view that the PGIM Real Estate Asia Retail Fund acquisition will drive the Reit's performance in FY2021.

"With one of the largest exposures in the suburban retail portfolio in Singapore, we remain excited that FCT can deliver a potent mix of growth and stability in the medium term," Ms Wong and Mr Tan said.

With the completion of the acquisition of PGIM portfolio and the planned sale of Bedok Point, DBS is projecting about a 6 per cent increase in FCT's distribution per unit (DPU) for FY2021, versus its pre-Covid-19 DPU of 12.1 Singapore cents.

The analysts are of the view that the "worst is potentially over" for FCT, and that the Reit has entered a "new era of growth", with the potential for more deals in the pipeline.

"We believe that PGIM is not the end game for FCT and there are further acquisitions that can be executed in the medium term, including Northpoint City South Wing and further stakes in Waterway Point," DBS noted.

Earlier this week on Tuesday, FCT posted a DPU of 4.372 Singapore cents for the half year ended Sept 30, down 26.1 per cent from 5.913 cents a year ago. Gross revenue tumbled 33.8 per cent to S$64.5 million, mainly due to S$27.4 million in rental rebates provided to tenants amid the pandemic, its manager said.

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