Retail REIT Frasers Centrepoint Trust (SGX:J69U) released its financial results for the second quarter of financial year 2019/20 ended 31 March 2020 before trading hours this morning (23 April.)

I have taken a look at its latest set of financial results, portfolio and debt profile, distribution payouts to unitholders, along with what the CEO of Frasers Centrepoint Asset Management Limited (the manager of Frasers Centrepoint Trust) have to say, and have highlighted the most important points to take note of, along with my comments, in this post about the retail REIT’s latest set of results:

Financial Performance (Q2 FY2018/19 vs. Q2 FY2019/20):

Q2
FY2018/19
Q2
FY2019/20
% Variance
Gross Revenue
(S$’mil)
$49.7m$50.2m+0.9%
Property Operating
Expenses (S$’mil)
$13.3m$14.2m+6.9%
Net Property
Income (S$’mil)
$36.4m$36.0m-1.3%
Distributable Income
to Unitholders
(S$’mil)
$29.2m$18.0m-38.3%

Gross revenue inched up by a mere 0.9% quarter-on-quarter (q-o-q) to S$50.2m – the increase was due to gross rent increase for renewals, and step-up rents from existing leases.

Its property operating expenses, however, gone up by 6.9% q-o-q to S$14.2m due to the absence of a write-back of property tax not required, partially offset by lower marketing expenses in the current quarter under review.

As a results of the REIT’s property operating expenses increasing at a higher percentage than its gross revenue, its net property income weakened by 1.3% on a q-o-q basis to S$36.0m.

Finally, its distributable income to unitholders fell by 38.3% to S$18.0m, due to the REIT retaining 50% of the income available for distribution in light of the uncertainties brought about by the Covid-19 outbreak in Singapore.

My Thoughts: Overall, it was a mixed set of results reported by the REIT, largely because of a lack of a one-off in its property operating expenses.

The REIT’s retention of distributable income to unitholders was a result of the uncertainties due to Covid-19 outbreak in Singapore, and this retention was within my expectations.

Portfolio Occupancy Profile (Q1 FY2019/20 vs. Q2 FY2019/20):

Next, let us take a look at the retail REIT’s most recent set of portfolio occupancy profile (for Q2 FY2019/20), along with my comparison with the REIT’s portfolio occupancy profile recorded in the previous quarter (i.e. Q1 FY2019/20) to find out whether or not it has improved (or deteriorated):

Q1
FY2019/20
Q2
FY2019/20
Portfolio Occupancy
(%)
97.3%96.1%
Rental Reversion
(%)
+5.0%+5.2%
Portfolio WALE – by NLA
(years)
1.8 years1.8 years

My Thoughts: While there was a slight drop in the REIT’s overall portfolio occupancy rate for the current quarter under review (compared against the previous quarter), its year-to-date rental reversion for the current and previous quarters have continued to remain positive, while its portfolio WALE have also remained consistent.

Debt Profile (Q1 FY2019/20 vs. Q2 FY2019/20):

Similar to how I look at and analyse the REIT’s portfolio occupancy profile, I will also be comparing the REIT’s debt profile for the current quarter under review (i.e. Q2 FY2019/20) against its debt profile recorded in the previous quarter (i.e. Q1 FY2019/20):

Q1
FY2019/20
Q2
FY2019/20
Gearing Ratio
(%)
33.2%33.3%
Interest Coverage
Ratio (times)
5.9x6.4x
Average Term to
Debt Maturity (years)
2.5 years2.1 years
Average Cost of Debt
(years)
2.57%2.44%

My Thoughts: What I like about the REIT’s most recent set of debt profile is its improvement in its interest coverage ratio compared to the previous quarter. At the same time, I noted that the average cost of debt have also come down a little compared to the last quarter.

Distribution Per Unit to Unitholders (Q2 FY2018/19 vs. Q2 FY2019/20):

The management of Frasers Centrepoint Trust declares a distribution payout to unitholders on a quarterly basis. Here’s the declared distribution per unit to unitholders for the current quarter under review (i.e. Q2 FY2019/20), compared against the distribution payout declared in the same quarter last year (i.e. Q2 FY2018/19):

Q2
FY2018/19
Q2
FY2019/20
% Variance
Distribution Per Unit
(S$’cents)
3.137
cents
1.610
cents
-48.7%

The q-o-q plunge in the REIT’s distribution per unit to unitholders for the current quarter under review was largely due to an enlarged unitholders base, as well as a higher amount of distributable income retained during the period.

The ex-dividend date for the REIT’s Q2 FY2019/20 distribution payout will be on 30 April, book closure date on 04 May, and payout date on 29 May.

My Thoughts: This was largely within my expectations due to the uncertainties for the retail sector ahead as a result of the Covid-19 outbreak in Singapore.

Summary of CEO of Frasers Centrepoint Asset Management, Mr Richard Ng’s, Comments:

  • The CEO highlighted that the REIT’s retail malls have been severely affected due to the Covid-19 outbreak.
  • As such, Frasers Centrepoint Trust, together with Frasers Property Retail rolled out their Tenant Support Package to help their tenants meet immediate cashflow challenges and provide rental relief and support over the next few months.
  • IT was also noted that the combination of the detriment of Covid-19, the regulatory measures (i.e. the Circuit Breaker measures effective 07 April to 01 June 2020), and the provision of the Tenant Support Package to the REIT’s tenants will have a significant impact to the REIT’s revenue, income available for distribution, and cashflow for the remaining period of FY2019/20.

In Conclusion:

As a unitholder, I am happy to note that the REIT’s portfolio occupancy profile remains resilient. The same goes for its debt profile as well.

The drop in the REIT’s distribution payout for the current quarter (and also in my opinion, the remaining two quarters of the current financial year 2019/20, and the drop is very likely to be of a similar magnitude as well) is due to a virus outbreak (which is a temporary event), and not because of the REIT’s fundamentals being soured (a possible permanent damage.)

I’m confident of the REIT restoring its distribution payouts to unitholders (and also increasing its payouts over time, just like it has done in the previous years) after the Covid-19 ends, and when everyone’s lives goes back to normal once again.

Download Your Copy of Frasers Centrepoint Trust’s Latest Financial Results, Presentation, and Press Release Below:

Disclaimer: At the time of writing, I am a unitholder of Frasers Centrepoint Trust.

 

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