Top Stock Market Highlights of the Week: Frasers Property Limited, Frasers Centrepoint Trust and China’s Reopening

Welcome to the latest edition of top stock market highlights.

Frasers Property Limited (SGX: TQ5)

Frasers Property Limited, or FPL, together with Frasers Centrepoint Trust (SGX: J69U), or FCT, jointly announced that they will acquire a 50% stake in Gold Ridge Pte Ltd, which owns the popular suburban retail mall NEX.

Post-acquisition, FCT will own 25.5% of NEX while FPL will own the remaining 24.5%.

NEX is located in Serangoon and has seven levels of retail space (332 stores) with a net lettable area (NLA) of 634,631 square feet.

The purchase consideration will be S$652.5 million and the property still has 85 years of lease remaining from its 99-year tenure.

The net property income (NPI) yield for NEX based on 2022’s NPI is in the high 4% level.

The mall enjoys a committed occupancy of 99.9% and has key tenants such as Fairprice Xtra, Isetan (SGX: I15), Food Junction, Shaw Theatres, and Cold Storage Supermarket.

Furthermore, the property enjoys excellent connectivity, being close to the integrated Serangoon bus interchange and Serangoon MRT station which is an interchange for both the Circle and Northeast lines.

Frasers Property Singapore’s CEO Ms Soon Su Lin remarked that retail is one of FPL’s five asset classes within its multinational portfolio, and the investment in NEX further strengthens this pillar.

Please see the section below on how this acquisition benefits FCT.

Frasers Centrepoint Trust (SGX: J69U)

For FCT, the acquisition of NEX from the Mercatus Co-operative, the real estate arm of NTUC Enterprise, enables the retail REIT to add a high-quality asset to its portfolio of malls.

NEX is a suburban retail mall which is a good fit for FCT’s portfolio.

The acquisition will help to diversify FCT’s retail portfolio further, with the largest mall accounting for 17% of NLA, down from 19% pre-acquisition.

FCT’s assets under management will increase from S$6.2 billion to S$6.7 billion post-acquisition.

The manager of the REIT will tap on debt and existing cash resources to finance this acquisition, and FCT’s aggregate leverage is expected to rise from 33% to 38.5%.

The transaction is also anticipated to be distribution per unit (DPU) accretive.

DPU will rise by around 0.52% from S$0.12227 (as of the fiscal year 2022) to S$0.12291.

Meanwhile, FCT has also concurrently released its fiscal 2023’s first quarter (1Q2023) business update for the period ending 31 December 2022.

Healthy leasing demand saw the REIT’s occupancy rate inch up 1.2 percentage points year on year to 98.4%.

Shopper traffic jumped by 38.3% year on year while tenant sales improved by 13.4% year on year.

As of 31 December 2022, FCT’s aggregate leverage stood at 33.9% with the interest cover ratio at 4.7 times.

In line with rising interest rates, the retail REIT’s cost of debt has jumped from 3% as of 30 September to 3.5% in the latest quarter.

The good news is that 73% of FCT’s borrowings are hedged to fixed rates.

The manager continues to curate and refresh its retail offerings, introducing new brands such as Love, Bonito, Kaleido, and The Salt Clinic to FCT’s portfolio.

Aside from the acquisition of NEX, FCT has also undertaken an asset enhancement initiative (AEI) for Tampines 1.

The REIT will spend S$38 million to rejuvenate the mall, with the AEI to commence in phases from 2Q2023 and slated to complete by 3Q2024.

China’s reopening

China’s recent reopening has had a positive effect on the global economy as it signals that demand will return from the world’s most populous nation.

Although the country’s gross domestic product (GDP) suffered last year, there’s optimism that the resumption of mobility will restore consumer demand and benefit the global economy this year.

One sector that will immediately benefit is hospitality, as mainland Chinese travellers can now leave the country for vacations.

Airlines, hotels, and tourist attractions will benefit from this revenge spending as pent-up demand for holidays leads to aggressive spending.

Some of the beneficiaries include Singapore Airlines Limited (SGX: C6L), hospitality trusts such as CapitaLand Ascott Trust (SGX: HMN) and CDL Hospitality Trusts (SGX: J85), and tourism operator Genting Singapore Limited (SGX: G13) and Straco Corporation Limited (SGX: S85).

Supply chains should also flow more smoothly with restrictions eased, leading to higher demand for industrial and logistics space.

The higher demand should benefit REITs such as Mapletree Logistics Trust (SGX: M44U) and Frasers Logistics & Commercial Trust (SGX: BUOU).

Finally, commercial leasing demand should also see a rebound as multinational corporations and mainland state-owned enterprises reconnect via Hong Kong.

Singapore’s office market is expected to benefit too, with around 500 Chinese companies registering or shifting their place of business to Singapore over the last 12 months (as of November 2022).

The uptick in leasing demand should benefit REITs such as CapitaLand Integrated Commercial Trust (SGX: C38U).

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Disclaimer: Royston Yang owns shares of Frasers Logistics & Commercial Trust.

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