With its financial year end on 30 September, retail REIT Frasers Centrepoint Trust (SGX:J69U) released its business updates for the third quarter ended 30 June 2020 after market hours last Thursday (23 July.)
Before I begin, there are two things you need to know – first, the REIT have switched to reporting its financials on a half-yearly basis since calendar year 2020 and as such, it will only be providing a business update for the first and third quarter; second, from calendar year 2020 onwards, the REIT will be switching to a semi-annual distribution payout (from a quarterly payout previously) and as such, there are no distributions declared for the current quarter under review.
In this post, you will find key aspects of the REIT’s latest business update to take note of, along with my thoughts to share…
Portfolio Occupancy Profile (Q2 FY2019/20 vs. Q3 FY2019/20)
In this section, let us take a look at the REIT’s portfolio occupancy profile for the quarter ended 30 June 2020 (i.e. Q3 FY2019/20), compared against its portfolio occupancy profile recorded in the previous quarter ended 31 March 2020 (i.e. Q2 FY2019/20) to find out if it has improved or deteriorated:
| Q2 FY2019/20 | Q3 FY2019/20 | |
| Portfolio Occupancy (%) | 96.1% | 94.6% |
| WALE (by Net Lettable Area – in Years) | 1.8 years | 1.7 years |
| WALE (by Gross Rent – in Years) | 1.8 years | 1.6 years |
All of the REIT’s malls under its portfolio saw a lower occupancy rate compared to the previous quarter and as such, its overall portfolio occupancy saw a lower occupancy rate. Its portfolio WALE (Weighted Average Lease Expiry) saw declines compared to the last quarter as well.
On top of that, from my understanding in the REIT’s presentation slides, there are only 4.8% of expiring leases (by net lettable area), including pre-committed leases, remaining to be renewed in the final quarter of the current financial year 2019/20.
My Thoughts: No surprises here, as the quarter under review encompasses the two-month circuit breaker period implemented by the Singapore government, where a majority of retail shops had to temporarily close as a result.
Also, in a period like this, it is inevitable we see some businesses winding up, hence leading to an increase in the vacancy rate in the retail malls.
At the time of writing, we are into Phase 2 of the safe transition, with a huge majority of the retail shops resuming their operations, and dining-in allowed once again in F&B outlets. As such, I am of the opinion that we may see better sets of results in the quarter ahead, even though it may be quite awhile before it goes back to pre-Covid-19 levels.
Debt Profile (Q2 FY2019/20 vs. Q3 FY2019/20)
Another update that the retail REIT provided was its debt profile. Let us now compare its latest debt profile against the previous quarter to find out if it has improved or deteriorated:
| Q2 FY2019/20 | Q3 FY2019/20 | |
| Gearing Ratio (%) | 33.3% | 35.0% |
| Interest Coverage Ratio (times) | 6.4x | 4.8x |
| Average Term to Debt Maturity (years) | 2.1 years | 2.3 years |
| Average Cost of Debt (%) | 2.4% | 2.5% |
My Thoughts: Overall, the REIT’s latest debt profile deteriorated compared to the previous quarter – with its gearing ratio and average cost of debt increasing slightly, and at the same time, its interest coverage ratio recording a slight decrease.
For the remainder of FY2019/20, there are S$120m (or 10.5% of total borrowings) maturing.
Finally, even though its gearing ratio have increased, at 35.0% recorded as at the end of the 3rd quarter of FY2019/20, it is a safe distance away from the 50.0% regulatory limit – and this allows the REIT plenty of debt headroom to make further yield-accretive acquisitions should an opportunity comes along.
In Conclusion
As a unitholder, I was fully prepared for a weaker set of portfolio occupancy and debt profile as retail REITs were badly impacted by the two-month circuit breaker period.
Barring unforeseen circumstances, I am confident of the REIT reporting an improved set of results in the quarters ahead (but on a year-on-year basis, I an of the opinion that it will be a weaker one.) Personally, I am also of the opinion that its may be awhile before we see the numbers (not just in terms of its financial results and portfolio occupancy profile, but also in its customer footfall and retail sales) returning to pre-Covid-19 levels.
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Disclaimer: At the time of writing, I am a unitholder of Frasers Centrepoint Trust.
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