3 things about Frasers Centrepoint Trust (SGX:J69U) to highlight:
First, the REIT’s 9 retail properties and 1 office property are all located in Singapore – hence making it a popular choice among investors who prefer to invest in a pure-play Singapore REIT.
Second, the REIT targets one segment – suburban retail mall market, where all of its retail properties are located.
Third, these retail malls are considered ‘defensive’, as many of the tenants provide essential services such as supermarkets, pharmacies, food and beverage, tuition centres, etc., which people need regardless of the economic condition. This explains why the occupancy rates of the REIT’s retail malls have been maintained at very high levels (above 95.0%).
The REIT is also one in my long-term investment portfolio (you can check out a list of all the companies I have investments in here) which I was lucky enough to invest during the ‘circuit breaker’ period in April 2020 at a low of S$1.85, and held on to my units since. It is also one where its unit price did not fall under my buy price during October to November period last year when the unit prices of REITs went on a ‘free fall’.
After market hours yesterday (22 January 2024), Frasers Centrepoint Trust made available its business update for the 1st quarter of the financial year 2023/24 ended 31 December 2023 (it has a financial year end every 30 September).
As the REIT have switched to reporting its full financial results on a half-yearly basis (the same can also be said for its distribution payout frequency), for the current quarter under review, it only shared an update of its portfolio occupancy and debt profile – both of which we will be looking at in this post:
Portfolio Occupancy Profile (Q4 FY2022/23 vs. Q1 FY2023/24)
One of the reasons I made the investment decision in Frasers Centrepoint Trust was because of its very strong portfolio occupancy of its properties over the years, and it has remained as such.
So, has the trend continued for Q1 FY2023/24? Let us have a look in the table below, where I will be comparing the stats reported for the current quarter under review against that reported in the previous quarter 3 months ago (i.e., Q4 FY2022/23 ended 30 September 2023) to find out if it has improved or declined:
| Q4 FY2022/23 | Q1 FY2023/24 | |
| Portfolio Occupancy (%) | 99.7% | 99.9% |
| Portfolio WALE (by NLA – years) | 2.0 years | 2.0 years |
| Portfolio WALE (by Gross Rent – years) | 1.8 years | 1.9 years |
My Observations: I must say that the REIT’s portfolio occupancy, at 99.9%, is a very strong one – attributed by all of its retail malls (excluding Tampines 1 due to ongoing works – which is expected to complete by September 2024; currently, more than 97% of the AEI spaces have been pre-committed to date) having an occupancy rate of at least 99.0%; its office property as at 31 December 2023 has an occupancy of 96.5% (a 1.2 percentage point increase from 95.3% recorded in the previous quarter).
For lease maturities, between now till FY2025/26 ended 30 September 2026, an average of 20+% of the leases will be expiring each year – which is quite well-staggered. Finally, on the portfolio WALE of about 2 years (both on net lettable area and gross rent), it is consistent with the lease expiries of other retail REITs in Singapore.
Debt Profile (Q4 FY2022/23 vs. Q1 FY2023/24)
In light of the current high interest rate environment we are in right now, I will want to make sure that a REIT’s aggregate leverage is a good distance away from the regulatory limit (preferably no more than 40%), and that it has a high percentage of borrowings hedged to fixed rates (preferably above 80%, as the impact of higher borrowing costs on distribution payouts will be lesser compared to those who have a lower percentage of borrowings hedged to fixed rates).
Just like how I have reviewed Frasers Centrepoint Trust’s portfolio occupancy in the previous section, I will also be doing a comparison of the REIT’s debt profile recorded for the current quarter under review (i.e., Q1 FY2023/24) against that recorded for the same time period 3 months ago (i.e., Q4 FY2022/23) to find out if it has continued to remain healthy, or it has weakened:
| Q4 FY2022/23 | Q1 FY2023/24 | |
| Aggregate Leverage (%) | 39.3% | 37.2% |
| Interest Coverage Ratio (times) | 3.5x | 3.4x |
| Average Term to Debt Maturity (years) | 2.3 years | 2.8 years |
| Average Cost of Debt (%) | 3.8% | 4.3% |
| % of Borrowings Hedged to Fixed Rates (%) | 63.0% | 63.4% |
My Observations: The REIT’s debt profile was a bit of a mixed bag (in my opinion) – positives include the 2.0 percentage point drop in its aggregate leverage (to 37.2% – at this level, it is a safe distance to the regulatory limit of 50.0% set by the Monetary Authority of Singapore), as well as a slight increase in the percentage of borrowings hedged to fixed rates (but it is still on the low end in my opinion, and exposing the REIT to the high borrowing cost environment and distribution payouts being negatively impacted).
2 negatives in its debt profile include the slight dip in its interest coverage ratio to 3.4x (one thing I note is that the REIT’s interest coverage ratio have been on a downward slide since Q2 FY2021/22, at 5.7x), and its average cost of debt inching up by another 0.5 percentage points to 4.3%.
On debt maturities, the REIT have no refinancing requirements in the current financial year (which is good to note). In the coming financial years, it has an average of about 20% of borrowings due for refinancing each year – which is well-staggered.
Closing Thoughts
The very resilient portfolio occupancy (of 99.9% as at 31 December 2023) is a big positive to note – where all of its retail malls have recorded an occupancy rate of at least 99.0%. Portfolio shopper traffic (compared to last year) have also recorded a 3.1% improvement.
Looking at its debt profile, considering we are still in a high interest rate environment, no surprises there that the REIT’s all-in cost of debt have continued to climb – but the good thing is that the REIT does not have any refinancing obligations for the current financial year; also, it’s aggregate leverage, at 37.2%, is a safe distance to the regulatory limit of 50.0% – hence providing some debt headroom for the REIT to embark on further yield accretive acquisitions.
With that, I have come to the end of my review of Frasers Centrepoint Trust’s business update for the 1st quarter of the financial year ended 31 December 2023. Do note that all the information above are purely for educational purposes only, and they do not comprise of any buy or sell calls for the REIT’s units. 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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