Frasers Centrepoint Trust (‘FCT’) is a REIT that owns and operates 7 suburban malls in Singapore. FCT generates rental income from its malls that have a total of 1.4m sqft of net lettable area. The REIT is sponsored by Frasers Property Limited, which develops and manages a wide range of properties globally. While its share price has somewhat recovered, I think there is room for more premium than what the market currently accords to it. FCT continues to offer investors good value due to:

1. Visible pipeline for acquisition growth

FCT currently holds a 25% stake in PGIM ARF fund, which has 5 suburban malls with a total of ~1.0m sqft of retail space under the AsiaMalls brand. Its parent, Frasers Property (‘FPL’), holds 65% while the remainder is held by third parties. As part of a possible capital recycling strategy by FPL, the 65% stake could be divested to FCT given that the characteristics (type of malls and tenant mix) of the PGIM ARF assets are very similar to the type of malls FCT currently holds.

 Apart from acquisitions of stakes in the PGIM ARF fund, there is also the potential for FCT to increase its stake in Waterway Point, in which it currently holds 40%. The stake in Waterway Point was acquired in 2019 and this could go up once the mall stabilizes; Waterway Point is currently still within its first 2-3 renewal cycles which tend to be periods of stabilization in terms of tenant mix and footfall. Similarly, FCT could also acquire Northpoint City South Wing; FCT currently owns Northpoint City North Wing. Northpoint was reopened in 2017 after extensive asset enhancement works and is also yet to fully stabilize according to FCT. 

2. Dominant malls in regions with low floorspace per capita in Singapore

FCT’s 2 biggest revenue contributors, Causeway Point and Northpoint City North Wing, have dominant positions in the Northern part of Singapore. The Northern part of Singapore is also the region which has the lowest shopping mall floor space per capita according to a Cistri report in Aug 2019. This implies that both malls have an excellent catchment of residents and have less competition compared to other regions.

Floor space per capita (Source: Cistri)

3. Suburban retail to remain resilient amidst Covid

Suburban retail malls differ from their prime district counterparts in terms of tenant mix, with a higher proportion of tenants being in essential goods and services (ie. Supermarkets and F&B outlets). In the latest retail sales figures released by Singstat, Supermarkets and Convenience Stores were the only 2 categories that registered yoy and mom growth.

FCT is well-exposed to these sectors as shown in its portfolio trade mix where about 50% of its gross rental income is derived from F&B, Household and Supermarket tenants. The coming Covid-19 induced recession also plays to the value proposition of suburban malls, which is to have products that have accessible pricing relative to prime district malls. With consumers tightening their purse-strings, the search for value items could divert spending towards suburban malls.

FCT portfolio trade mix (Source: FCT)

Key risks 

1)     Business impact from Covid-19. An extended virus scare could negatively impact FCT’s tenants and could potentially lead to negative rental reversions and lower occupancy going forward. This could also negatively impact property valuations and cause P/B to rise in subsequent years. 

2)     Concentration risk. FCT’s top 2 malls, Causeway Point and Northpoint, contribute 75% of its Net Property Income. Any decline in population in the Northern part of Singapore or new malls built in the area could negatively impact footfall in the 2 malls.

3)     Large tenant non-renewals. About 14% of FCT’s total gross rental income is up for renewal in FY20 and non-renewals, especially for anchor tenants, could imply a period of reduced rent even if a replacement tenant is found due to the time required for fitout works.