For those of you who may not be familiar with Frasers Centrepoint Trust (SGX:J69U), its properties are all located in Singapore. Also, 10 out of 11 properties in its portfolio are retail malls located in the various heartland locations, with the other property (Central Plaza in Tiong Bahru) being an office building.

Following the end of its financial year on 30 September 2023 (i.e., FY2022/23), the REIT have made available its annual report, along with notice of AGM, this morning (22 December).

In this post, you will find a summary of the REIT’s latest annual report, as well as information about its upcoming AGM:

Summary of Frasers Centrepoint Trust’s Annual Report

Key FY2022/23 Highlights:

  • Gross revenue and net property income were up by 3.6% (from $356.9m to $369.7m) and 2.7% (from $258.6m to $265.6m) respectively, largely led by higher gross rental, increase in atrium income with the resumption of atrium events with effect from 29 March 2022, and property tax refunds received. However, this was partially offset by lower gross revenue at Tampines 1 due to asset enhancement initiatives, higher maintenance and utility expenses, and higher staff costs.
  • Distributable income to unitholders dipped by 0.2% (from $208.2m to $207.7m), and distribution per unit edged down by 0.6% to 12.15 cents (from 12.227 cents the financial year before), mainly attributed to higher interest expense, and partially mitigated by higher net property income and distribution from joint ventures.
  • Aggregate leverage went up to 39.3% (from 33.0% in the previous financial year), mainly due to the acquisition of 10.0% interest in Sapphire Star Trust (which owns Waterway Point), and effective 25.50% interest in Gold Ridge Pte Ltd (which owns NEX), which were fully debt funded. However, assuming the net proceeds from Changi City Point and interest in Hector REIT were used to repay certain debts, the aggregate leverage on a pro forma basis as at 30 September 2023 is expected to be reduced to 36.1%.
  • Committed occupancy of the retail portfolio was up 2.2 percentage points year-on-year (y-o-y) to 99.7%, and average rental reversion was at +4.7% (compared to +4.2% recorded in the previous financial year under review). Approximately 96.4% (up from 91.8% in FY2021/22) of the retail portfolio leases have step-up rent clauses that provide for annual rental increment of between 1-2% over the lease term. Portfolio tenants’ sales and shopper traffic were up by 7.3% and 24.7% y-o-y respectively.

Acquisitions, AEI, and Divestments in the Financial Year:

Acquisition of NEX, and Additional Interest in Waterway Point:

  • Joint acquisition of a 50.0% interest in NEX together with its Sponsor, Frasers Property Limited, of which the REIT’s effective interest is 25.5%. With the acquisition, Frasers Centrepoint Trust now owns or jointly-own 4 out of the 10 largest prime suburban malls in Singapore (NEX, Northpoint City, Causeway Point, and Waterway Point).
  • Acquisition of an additional 10.0% interest in Waterway Point, bringing the REIT’s interest in the mall to 50.0% – according to the REIT, this is a strategic move to expand its presence in Singapore’s suburban retail market and strengthen the quality of its portfolio.

AEI at Tampines 1:

  • In Q3 FY2022/23, the REIT announced the commencement of the $38.2m AEI at Tampines 1, aiming to create a refreshed retail experience with the introduction of new retail brands and services, improve asset yield, and unlock value through space re-configuration.
  • The projected return on investment is approximately 8% from higher rent income and savings from sustainable features that reduce energy consumption and carbon emission.
  • AEI is scheduled to complete in Q4 FY2023/24, ahead of the year-end festive season.

Divestments in Changi City Point, and Interest in Hektar REIT:

  • Frasers Centrepoint Trust divested Changi City Point in Q4 FY2022/23 for S$338.0m, and its entire interest of 30.97% in Hektar REIT for S$39.3m.
  • Estimated net gain and capital gain of Changi City Point are approximately S$10.9m and $20m respectively.

Frasers Centrepoint Trust’s Sustainability Journey and ESG:

  • For the 3rd consecutive year, the REIT achieved a 5-Star rating in the 2023 GRESB Real Estate Assessment, and also an “A” rating from the MSCI ESG Ratings in September 2023, for the 2nd consecutive year.
  • All 10 retail malls and 1 office property have achieved BCA Green Mark certifications with 5 of them rated Platinum, 3 rated GoldPlus and 3 rated Gold on the new stricter Green Mark 2021 framework.
  • On green financing, the proportion of green loan in Frasers Centrepoint Trust’s total borrowing stood at 55.6% as at 30 September 2023, up from 31.9% last year.
  • Among the initiatives by the REIT in its sustainability journey in the financial year include (i) the leveraging on innovation and technology to improve efficiency in its operations and reduce costs, including food waste management, data analytics for lifts, and water valve efficiency initiative – all of which are projected to have $1m per annum when fully implemented; (ii) the rolling out of charging points for electric vehicles in its malls to support green mobility, and installation of solar panels at its malls to provide green energy.

Outlook of the Suburban Retail Sector in Singapore:

  • The Manager expects interest rate movements and rising operating expenses to remain the key factors affecting the REIT’s performance.
  • Barring unforeseen circumstances, the Manager expects the average cost of borrowing of the REIT to be above 4%; for operating expenses, the Manager will continue to work on cost optimisation initiatives, and to maintain vigilant on the movement of energy prices and contracted service fees. It will adopt appropriate hedging strategies for energy contracts to mitigate the impact on its operating expenses.
  • While macroeconomic environment remains challenging, the Manager remains positive on the outlook of the suburban retail sector in Singapore, due to Singapore’s population growth, sustained healthy consumer spending on essentials, healthy demand for prime suburban retail space, and tight supply in the retail market.

Details of the REIT’s Upcoming AGM

When? Monday 22 January 2024
Time? 10.00am
Where? Grand Ballroom, Level 2, InterContinental Singapore, 80 Middle Road, Singapore 188966

If your unit are held in your CDP account, then you can just attend the meeting without any pre-registration (your unit holdings will be verified on the spot). However, if your units are held in a custodian account, then you will need to get in touch with your brokerage to appoint you to attend the meeting as a proxy.

There are no options for unitholders to attend the meeting virtually, unfortunately.

Closing Thoughts

I was fortunate enough to have “caught the low” of Covid-19 in 2020 and invest in the REIT at S$1.85, and have stay invested in it since.

The REIT is one where I consider to be “defensive” to a certain extent because of the location of its malls (at heartland locations serving residents staying in the vicinity, where they visit the malls for essentials – including groceries at supermarkets, food at the food kiosks, foodcourts, and restaurants, and also essentials at pharmacies, etc.) On the other hand, because the REIT is only invested in Singapore properties (at present), growth is limited.

Looking at its financial performance, as well as portfolio occupancy in the financial year under review, it has remained stable. The only negative was the dip in its distribution payout to unitholders, which was impacted by the higher borrowing costs. No doubt the US Federal Reserve have signalled for interest rate cuts in the calendar year 2024, but it will be some time before the lower rates are being reflected (as and when maturing borrowings are being refinanced). As far as distribution payout for the financial year ahead goes, if it can be maintained at the same level as this year, it will be considered as a good one.

With that, I have come to the end of my summary of Frasers Centrepoint’s latest annual report for the financial year ended 30 September, along with my personal thoughts about the REIT. I hope you have found the contents presented useful, and as always, do note that all opinions shared in this post is for educational purposes only. You are strongly encouraged to do your own due diligence before you make any investment decisions.

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

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