For those who are looking to invest in a REIT that has all of its properties located in Singapore, then Frasers Centrepoint Trust (SGX:J69U) is one you may want to have a look at – the REIT invests on retail malls in suburban locations in the country.

Currently, the REIT’s portfolio comprises 10 retail malls (Causeway Point, Century Square, Hougang Mall, 25.50% interest in NEX, Northpoint City North Wing [including Yishun 10 Retail Podium], Tampines 1, Tiong Bahru Plaza, 50.0% interest in Waterway Point, and White Sands), as well as 1 office property (Central Plaza), with a total assets under management of approximately S$6.9 billion.

This morning (25 October), the Singapore-listed REIT released its results for the 2nd half, as well as for the first half of the financial year 2022/23 ended 30 September, and in this post, you can find my review of its financial performance, portfolio occupancy and debt profile, as well as its distribution payout to unitholders.

Let’s begin:

Financial Performance (2H FY2021/22 vs. 2H FY2022/23, and FY2021/22 vs. FY2022/23)

In this section, you can find my review of Frasers Centrepoint Trust’s financial performance for the 2nd half of the year (i.e. 2H FY2021/22 vs. 2H FY2022/23), as well as for the full-year (i.e. FY2021/22 vs. FY2022/23):

2H FY2021/22 vs. 2H FY2022/23:

2H FY2021/222H FY2022/23% Variance
Gross Revenue
(S$’mil)
$180.7m$184.1m+1.8%
Property Operating
Expenses (S$’mil)
$52.6m$54.5m+3.6%
Net Property
Income (S$’mil)
$128.1m$129.6m+1.1%
Distributable Income
to Unitholders (S$’mil)
$103.8m$103.1m-0.7%

My Observations: Apart from a 0.7% dip in its distributable income to unitholders (as a result of the REIT releasing a smaller amount of its taxable income available for distribution to unitholders retained in the 1st half of the respective financial years [S$4.8m in 2H FY2021/22 vs. S$3.0m in 2H FY2022/23], offset by a smaller amount of retention of tax-exempt income in the 2nd half of the respective financial years [S$1.7m in 2H FY2021/22 vs. S$1.1m in 2H FY2022/23]), its gross revenue and net property income saw a small improvement.

Gross revenue went up by 1.8%, mainly due to higher gross rent arising from higher occupancy rates, higher rental achieved for new and renewed leases and staggered rent across most malls, increase in atrium income with the resumption of atrium events with effect from 29 March 2022, and higher carpark income. This was partly offset by lower gross revenue at Tampines 1 due to Asset Enhancement Initiative (AEI).

However, due to a higher percentage increase in property operating expenses (by 3.6%) as a result of higher maintenance and utility expenses, higher staff costs, and lower write-back of doubtful receivables, net property income edged up by just 1.1%.

FY2021/22 vs. FY2022/23:

FY2021/22FY2022/23% Variance
Gross Revenue
(S$’mil)
$356.9m$371.7m+4.1%
Property Operating
Expenses (S$’mil)
$98.3m$104.1m+5.9%
Net Property
Income (S$’mil)
$258.6m$267.5m+3.4%
Distributable Income
to Unitholders (S$’mil)
$208.2m$207.7m-0.2%

My Observations: In terms of its full-year results, it was pretty much similar (compared to its results in the 2nd half of the respective financial years) – gross revenue increased by 4.1% mainly due to higher gross rent arising from higher occupancy rates, higher rental achieved for new and renewed leases and staggered rent across most malls, and increase in atrium income with the resumption of atrium events with effect from 29 March 2022. However, this was offset by lower gross revenue at Tampines 1 due to AEI.

As a result of a higher percentage growth in its property operating expenses (by 5.9%), mainly due to higher maintenance and utilities expenses, and higher staff costs during the year, its net property income went up by a smaller percentage (compared to its gross revenue) at 3.4%.

Portfolio Occupancy Profile (Q3 FY2022/23 vs. Q4 FY2022/23)

Moving on, let us take a look at the REIT’s portfolio occupancy profile, where I will be looking at the statistics recorded for the current quarter under review (i.e., Q4 FY2022/23 ended 30 September) compared against that recorded for the previous quarter 3 months ago (i.e., Q3 FY2022/23 ended 30 June) to find out if it has continued to remain at high levels:

Q3 FY2022/23Q4 FY2022/23
Portfolio Occupancy
(%)
98.7%99.7%
Portfolio WALE
(by NLA – years)
2.0 years2.0 years
Portfolio WALE
(by Gross Rent – years)
1.9 years1.8 years

My Observations: Frasers Centrepoint Trust’s portfolio occupancy continues to remain very resilient – with its occupancy inching up by another 1.0 percentage points (pp) to 99.7%, which can be attributed to improvements in occupancy rates in all of its properties except Northpoint City North Wing (including Yishun 10), where it fell slightly from 100.0% in Q3 FY2022/23 to 99.7% in Q4 FY2022/23. Also, all of the REIT’s 10 retail malls have an occupancy rate of at least 99.0% – which is very good to note.

Another thing to note is the positive rental reversion recorded for new and renewed leases for all of its properties – at +4.7% on a portfolio level.

Debt Profile (Q3 FY2022/23 vs. Q4 FY2022/23)

Whenever I review a REIT’s results, apart from its financial performance and portfolio occupancy profile, I will also look at its debt profile – this is especially important in the current high interest rate environment, where my preference is towards REITs that have an aggregate leverage that has a comfortable 10% headroom (at least) before the regulatory level (set by the Monetary Authority of Singapore, or MAS for short) of 50.0% is hit.

The following table is a comparison of Frasers Centrepoint Trust’s debt profile recorded for the 4th quarter of FY2022/23 ended 30 September compared against that recorded in the previous quarter 3 months ago (i.e., 3rd quarter of FY2022/23 ended 30 June) to find out whether it has continued to remain at healthy levels:

Q3 FY2022/23Q4 FY2022/23
Aggregate Leverage
(%)
40.2%39.3%
Interest Coverage
Ratio (times)
3.9x3.5x
Average Term to
Debt Maturity (years)
2.5 years2.3 years
Average Cost of
Debt (%)
3.7%3.8%
% of Borrowings Hedged
to Fixed Rates (%)
63%63%

My Observations: Aggregate leverage, at 39.3%, continues to remain healthy (as there’s a good debt headroom to the regulatory limit of 50.0% at this level). Also, upon the completion of announced divestments of Changi City Point, and interest in Hektar REIT, its aggregate leverage will be reduced further to 36.1%. In my opinion, it is at a healthy level.

On the REIT’s debt maturity profile, the good news is that there are no borrowings due for refinancing in the coming financial year 2023/24 ahead (which is good to note.) For the next couple of years, it has an average of 20% of borrowings due for refinancing in each financial year.

Distribution Payout to Unitholders

For the 2nd half of FY2022/23 (period between 01 April 2023 and 30 September 2023), a distribution payout of 6.02 cents/unit was declared – a 1.2% dip compared to the amount of 6.091 cents/unit paid out for the same time period last year (i.e., 2nd half of FY2021/22), as a result of a higher interest expense.

On a full-year basis, together with the payout of 6.130 cents/unit declared in the first half of FY2022/23, its full year payout amounts to 12.10 cents/unit – compared to the full-year payout of 12.27 cents/unit declared in the last financial year 2021/22, this represents a slight 0.6% decline, again due to higher interest expense.

If you are a unitholder of the REIT, do take note of the following dates on its distribution payout:

Ex-Date: 02 November 2023
Record Date: 03 November 2023
Payout Date: 29 November 2023

CEO Mr Richard Ng’s Comments & Outlook (from the REIT’s Press Release)

“FCT delivered a strong set of financial results in FY23, underscored by improved financial and robust operating performances. During the year, we made five key announcements which are the acquisition of the 25.50% effective interest in NEX, the acquisition of the additional 10.00% interest in Waterway Point, the Asset Enhancement Initiatives (“AEI”) at Tampines 1, the divestment of Changi City Point and the divestment of FCT’s interest in Hektar REIT. The aggregate value of these transactions and initiatives is about S$1.1 billion, demonstrating our proactive portfolio management despite challenging market conditions. These strategic steps enable FCT to recycle its capital effectively, bolster its financial position and portfolio strength while reinforcing its leading market position in the Singapore suburban retail sector.

While the macroeconomic environment is challenging, we remain positive on the outlook of the suburban retail sector in Singapore, based on several factors such as Singapore’s population growth, sustained healthy consumer spending on essentials, healthy demand for prime suburban retail space and tight supply in the retail market. We believe FCT is well-positioned to benefit from these factors going forward.”

Closing Thoughts

On the whole, it was a stable set of results reported by the REIT – in terms of its financial results (both for the 2nd half of the year as well as for the full-year, both its gross revenue and net property income saw stable growth), portfolio occupancy (where all of its retail properties have an occupancy rate of above 99.0%, and a positive rental reversion of +4.2% attained for new and/or renewed leases), as well as its debt profile (where its aggregate leverage will be down to a good level of 36.1% following the completion of divestment of Changi City Point and interest in Hektar REIT, on top of the REIT having no borrowings due for refinancing in the coming financial year 2023/24 ahead.)

However, there are some slight negatives, including a decline in DPU for both periods (2nd half of the year, as well as for the full year) due to higher interest expenses, and also the rather low percentage of borrowings hedged at fixed rates (at just 63.0%) – moving forward, with the high interest rate environment set to stay, its DPU for the financial year ahead could be further impacted.

With that, I have come to the end of my review of Frasers Centrepoint Trust’s results for the 2nd half, as well as for the full-year ended 30 September. I hope you have found the contents presented in this post useful, and do note that all opinions within are purely mine which I’m sharing for educational purposes only. You should always 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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