Another retail REIT in my long-term investment portfolio, Frasers Centrepoint Trust (SGX:J69U), released its results for the second half, as well as for the full-year of 2019/20 (the REIT have a financial year-end every 30 September.)

As a unitholder, I have gone through its latest financial results, debt and portfolio occupancy profile, along with its distribution payouts, and in today’s post, you will find the most important aspects to take note of, along with my personal opinion to share…

Financial Results (2H FY2018/19 vs. 2H FY2019/20, and FY2018/19 vs. FY2019/20)

In this section, let us first take a look at the retail REIT’s financial performance for the second half of the current financial year (i.e. 2H FY2019/20 between 01 April and 30 September 2020), compared with the second half of the previous financial year (i.e. 2H FY2018/19 between 01 April and 30 September 2019), as well as results for the full year 2019/20 compared against the previous year 2018/19:

2H FY2018/19 vs. 2H FY20119/20:

2H FY2018/192H FY2019/20% Variation
Gross Revenue
(S$’mil)
$97.4m$64.5m-33.8%
Property Operating
Expenses (S$’mil)
$29.9m$25.9m-13.6%
Net Property
Income (S$’mil)
$67.5m$38.6m-42.8%
Distributable Income
to Unitholders
(S$’mil)
$62.5m$48.9m-21.7%

The REIT’s results for the second half of FY2019/2 was a weaker one compared to the same period last year – where the 33.8% drop in its gross revenue was mainly due to rental rebates granted to tenants (amounting to S$27.35m.)

Its property operating expenses also fell by 13.6%, mainly due to lower property manager’s fee arising from lower gross revenue and net property income, lower salaries, and related expenses arising from vacancies not filled, as well as lower marketing expenses.

Finally, the REIT’s distributable income to unitholders dipped by 21.7%. The drop was offset by the release of retained distribution of S$18.0m from 1H FY2019/20, and the full-year distributions of dividends received from the REIT’s investments in ARF (AsiaRetail Fund Limited) and in its 40% stake in Sapphire Star Trust (which holds Waterway Point.)

FY2018/19 vs. FY2019/20:

FY2018/19FY2019/20% Variation
Gross Revenue
(S$’mil)
$196.4m$164.4m-16.3%
Property Operating
Expenses (S$’mil)
$57.1m$53.5m-6.3%
Net Property
Income (S$’mil)
$139.3m$110.9m-20.4%
Distributable Income
to Unitholders
(S$’mil)
$119.7m$101.1m-15.5%

On a full-year basis, the REIT’s results too was a weaker one, where the decline in its gross revenue can be attributed to rental rebates provided to its tenants. This affected its net property income, as well as its distributable income to unitholders – where the both of them saw year-on-year (y-o-y) declines.

My Thoughts: The ongoing Covid-19 pandemic, particularly the two month circuit breaker period implemented by the Singapore government (between 07 April and 01 June 2020) in a bid to stem the community spread of the pandemic in the country, saw retail REITs being badly hit, and hence the negative set of results for the financial year under review.

At the time of writing, most of the retail shops have since resumed their operations, with shoppers also returning to the malls. Also, with Singapore on the verge of moving into Phase 3 of the safe transition, barring a second wave of the pandemic, I am of the opinion that we should see an improved set of results in the coming quarters of the new financial year ahead.

Debt Profile (Q3 FY2019/20 vs. Q4 FY2019/20)

Moving on, let us have a look at the REIT’s debt profile recorded as at 30 September 2020 (i.e. Q4 FY2019/20), compared against its debt profile recorded 3 months ago (i.e. Q3 FY2019/20 ended 30 June 2020) to find out if it have improved or deteriorated:

Q3 FY2019/20Q4 FY2019/20
Gearing Ratio
(%))
35.0%35.9%
Interest Coverage
Ratio (times)
4.8x5.0x
Average Term to
Debt Maturity (years)
2.3 years2.1 years
Average Cost of
Debt (%)
2.5%2.4%

My Thoughts: In my personal opinion, the REIT’s debt profile is a conservative one – even though compared to three months back, its gearing ratio inched up by 0.9 percentage points (pp) to 35.9%, but at its current gearing ratio, it is still a healthy distance away from the 50.0% regulatory limit.

As the cost of debt saw a 0.1pp improvement to 2.4%, due to a general decline in interest rates, its interest coverage ratio also improved to 5.0x.

Looking ahead, 20.3% (or S$255m) of its total borrowings will be maturing next financial year 2020/21, 27.9% (or S$350m) of its total borrowings will be maturing in FY2021/22, 31.2% (or S$391m) of its total borrowings will be maturing in FY2022/23, and the remaining 20.6% (or S$259m) of its total borrowings will be expiring in FY2023/24 and beyond.

Portfolio Occupancy Profile (Q3 FY2019/20 vs. Q4 FY2019/20)

Similar to how I studied the REIT’s debt profile, I will also be studying its portfolio occupancy profile by comparing the numbers reported in the current quarter under review (i.e. Q4 FY2019/20 ended 30 September 2020) against the numbers reported three months (i.e. Q3 FY2019/20 ended 30 June 2020) to find out if it has improved or deteriorated:

Q3 FY2019/20Q4 FY2019/20
Portfolio Occupancy
(%)
94.6%94.9%
Portfolio Weighted
Average Lease Expiry
(by Net Lettable
Area – in years)
1.7 years1.6 years
Portfolio Weighted
Average Lease Expiry
(by Gross Rental
Income – in years)
1.6 years1.5 years

My Thoughts: The retail REIT’s portfolio occupancy continued to remain resilient in my opinion – the 0.3pp improvement in its portfolio occupancy rate is attributed to improvements in the occupancy rate of Waterway Point (from 94.4% in Q3 to 96.0% in Q4), Bedok Point (from 90.6% in Q3 to 92.0% in Q4), YewTee Point (from 96.0% in Q3 to 97.1% in Q4), as well as AnchorPoint (from 92.6% in Q3 to 92.7% in Q4.)

From my understanding in the REIT’s presentation slides, shopper traffic have returned to about 60-70% of pre-Covid levels. With the further easing of safe distancing measures with the commencement of Phase 3 soon, shopper traffic should see further improvements in the months ahead.

Finally, in terms of lease expiries, 32.6% of the leases will expire in FY2020/21, 33.6% in FY2021/22, 27.0% in FY2022/23, and the remaining 6.8% of the leases will be expiring in FY2023/24 and beyond.

Distribution Payouts for 2H FY2019/20

The REIT have already gone ex-dividend on 06 October 2020 for a payout of 4.372 cents/unit to be paid out to unitholders on 04 December 2020.

On a full-year basis, its distribution payout to unitholders fell by 25.1% to 9.04 cents/unit (FY2018/19: 12.07 cents/unit.)

In Conclusion

No doubt the retail REIT’s results was a weaker one this financial year, but with Singapore on the verge of moving into Phase 3 of the safe transition, and also with the inclusion of the five heartland malls with their acquisition of the remaining 63.1% stake in AsiaRetail Fund Limited (you can read more about it in my summary of the REIT’s EGM held on 28 September 2020 to seek unitholders’ approval on the proposed transaction here), barring another wave of Covid-19 outbreak in Singapore, I believe the REIT’s results for the coming financial year will be a better one.

However, despite having said that, do take note that whatever you have read in this post (including my opinions) is purely for educational purposes only. Please do your own due diligence before you make any investment decisions.

Related Documents

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

 

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