1Q24 Operational Update: First to benefit as buyers flock the SG retail scene
- Portfolio occupancy climbs to a momentous all time high of 99.9%; More upside to ensue from AEI completions at Tampines One mall by Sep-24
- Aggregate leverage declined 2.1 ppt q-o-q to 37.2%; Tenant sales remains surprisingly sticky at c.118% of pre-COVID level in the quarter albeit outbound travel normalisation
- We believe additional sponsor stakes in NEX mall is a catalyst in reach, Valuation uplift of NEX of 1% as at end FY-23 to S$2,100m sets new expectations for deal price potentially at same cap rates of 4.8%
- Maintain BUY, TP of S$2.60 – More details after analyst briefing on Tues morning
Occupancy continues its momentous climb all time high of 99.9%.
- FCT’s portfolio occupancy continues its momentous climb to an all time of 99.9% (+0.2 ppt q-o-q & +1.5 ppt q-o-q).
- Shopper traffic continues to climb up 3.1% y-o-y as Singaporeans attune to endemic living.
- Tenant sales saw a marginal dip of 0.7% y-o-y, partly due to a partial loss of sales from the impending asset enhancement initiatives (AEI) works at Tampines One mall.
- The mall has seen the first stage of completion of AEI units in Dec-23, which has commenced trading from Dec-23, full completion on track to complete by Sep-24.
Decline in aggregate leverage through the recycling of divestment proceeds.
- Aggregate leverage stood at 37.2% as at end FY1Q24, a 2.1 ppt decline q-o-q, due to the paring down of debt from Changi City Point divestment proceeds.
- There will be no refinancing requirement for the rest of the financial year.
- Average cost of debt rose to 4.3% for the quarter (0.2 ppt increase q-o-q), with a corresponding dip in interest coverage ratio to 3.35x (4Q23: 3.47x).
- Average debt maturity extended to 2.8 years from 2.33 years the previous quarter, while percentage of fixed interest cost hedging remains unchanged at c.63%.
- Upcoming debt for renewal is front loaded into FY25 and FY26 where c.27% and 24% of total debt expiry will be due for renewal to rerate average cost of debt as interest cost environment softens further.
Tenant sales remains surprisingly sticky as outbound normalisation encroaches into domestic retail spend
- For the quarter, FCT’s shopper traffic approximates c.86% of pre-COVID levels (+2 ppt q-o-q & -5% q-o-q).
- Tenant sales continues to demonstrate stickiness at c.118% of pre-covid levels (vs c.119% for both FY1Q23 and FY4Q23).
- Further upside to tenant sales and shopper footfall to ensue post completion of Tampines 1 AEI with born and bred Singaporean brands Love Bonito and Fieldnotes amongst the many to be launch at the mall from Mar-24.
Allgreen acquisition of Seletar Mall at low 4% cap (estimated) to shine a favourable light on NEX mall (report)
- Allgreen’s ongoing acquisition of Seletar mall at an estimated deal cap rate of c.3.9% – 4.3% shines a favourable light on FCT’s NEX acquisition at 4.8% cap rate.
- We believe that sponsor will continue to lend support to FCT’s acquisition targets to unwind additional stakes in NEX this year, and inject additional NEX stakes at a flat cap rate of 4.8%. notwithstanding potential valuations gains on the asset last year.
- The asset has seen a slight valuation uplift in the financial year ending Sep-23 at S$2,100m (Sep-22 valuation at S$2,078m) alongside improvements in cash flows at the mall. In the past financial year, NEX has seen a 13% increase in shopper traffic y-o-y.
- While this will help FCT reach an intermittent goal of 50%, the end goal will still be to fully unwind NEX into the portfolio and attain tax transparency, to fulfil the full potential of DPU accretion from the asset, which we see as a catalyst for the coming years.