S&P Global affirms 'BBB' rating for Frasers Centrepoint Trust; takes it off CreditWatch

S&P Global Ratings has affirmed its "BBB" long-term issuer credit ratings on Frasers Centrepoint Trust (FCT), and its "BBB" issue ratings on the outstanding senior unsecured notes that FCT guarantees.

The agency has also removed the ratings from CreditWatch, where they were placed with negative implications on April 13. (S&P Global places ratings on CreditWatch when they warrant special surveillance by its analysts, based on identifiable events and short-term trends.)

S&P Global Ratings expects the trust's portfolio quality to "improve significantly" after its proposed acquisition of the remainder of Asia Retail Fund (ARF), formerly known as PGIM Real Estate AsiaRetail Fund. This can offset FCT's tolerance for higher leverage, if it satisfactorily completes the proposed corporate actions, including the acquisition, equity fund raising and an asset disposal.

Primary credit analyst Ng Yijing said: "We see a very high likelihood of the actions materialising, considering the trust's record and its fully underwritten equity fund-raising exercise."

She added that the ARF portfolio is complementary to FCT's business strategy. The portfolio consists of retail assets located near transport nodes and densely populated residential areas, so they benefit from high shopper traffic. It will also reduce asset concentration risk, as contribution from FCT's top two assets will be reduced from 75 per cent of net property income for FY2019 to 35-40 per cent after the acquisition.

S&P Global Ratings sees increased headwinds over the next six to 12 months for FCT, with Singapore's economic outlook and consumer spending weakened by the Covid-19 pandemic.

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"In addition, Covid-19 could accelerate an ongoing structural shift in consumer preference away from brick-and-mortar retail to online," Ms Ng said. "While FCT continues to engage shoppers through omni-channel platforms to drive mall visitation and sales, its effectiveness remains to be seen."

Units of FCT closed at S$2.67 on Wednesday, down four Singapore cents or 1.48 per cent.