For those of you who prefer to invest in a REIT that has all its properties located in Singapore, Frasers Centrepoint Trust (SGX:J69U) is one you may consider.

At the time of writing, it owns 9 retail properties and 1 office property scattered across the various suburban locations in the country, with a total assets under management of S$7.1 billion.

The REIT’s retail properties are well-connected to public transport nodes, and this provides a consistent feed of shopper traffic to its malls. Also, in terms of tenant base, they are all in “essential businesses” including supermarkets, clinics and pharmacies, food & beverages, tuition and enrichment centres – which serves the needs of people staying in the neighbourhood. These are reasons for the very high occupancy rates (above 90%) in their malls.

This morning (25 April 2024), Frasers Centrepoint Trust have made available its results for the 1st half of the financial year ended 31 March 2024 (i.e., 1H FY2023/24), and in this post, you will find my analysis in terms of its latest financial performance, portfolio occupancy and debt profile, as well as distribution payout to unitholders.

Let’s begin:

Financial Performance (1H FY2022/23 vs. 1H FY2023/24)

The retail REIT does not provide any financial figures for the 1st and 3rd quarter, hence in this section, you will find its financial figures for the 1st half of FY2023/24 compared against the figures posted last year, as follows:

1H FY2022/231H FY2023/24% Variation
Gross Revenue
(S$’mil)
$184.7m$172.2m-7.2%
Property Operating
Expenses (S$’mil)
$49.6m$47.6m-4.1%
Net Property
Income (S$’mil)
$136.0m$124.6m-8.4%
Distributable Income
to Unitholders
(S$’mil)
$104.7m$104.9m+0.2%

My Observations: The weaker gross revenue and net property income (which fell by 7.2% and 8.4% respectively) can be attributed to lower contributions from Changi City Point (which was divested on 31 October 2023), and Tampines 1 (which is currently undergoing asset enhancement initiative) – excluding the 2 properties, its gross revenue and net property income would have been up by 2.9% and 2.1% respectively due to higher physical occupancy, passing rents, and staggered rental across most malls.

Portfolio Occupancy Profile (Q1 FY2023/24 vs. Q2 FY2023/24)

When it comes to reviewing a REIT’s portfolio occupancy profile, my preference is to review the figures reported for the current quarter under review against that reported in the previous quarter 3 months ago.

In the table below, you will find Frasers Centrepoint Trust’s portfolio occupancy profile reported in Q2 FY2023/24 ended 31 March 2024, compared against that reported in the previous quarter (i.e. Q1 FY2023/24 ended 31 December 2023) to find out if it continues to remain at a high level (just like in the previous quarters):

Q1 FY2023/24Q2 FY2023/24
Portfolio Occupancy
(%)
99.9%99.9%
Portfolio WALE
(by NLA – years)
2.0 years2.0 years
Portfolio WALE
(by Gross Rent – years)
1.9 years1.9 years

My Observations: Compared to the previous quarter, its portfolio occupancy profile was unchanged – with its portfolio occupancy at a high of 99.9%. As far as occupancy rates for the individual properties are concerned, all the retail malls (excluding Tampines 1 which was undergoing asset enhancement initiative works) are all above 99.5% (which is very strong in my opinion). Its office property in Central Plaza have an occupancy rate of 93.8% (a decline by 2.7 percentage point [pp] from the occupancy rate of 96.5% in Q1 FY2023/24.

Rental reversions for new and/or renewed leases in all of its properties in 1H FY2023/24 were all at positive figures – with its retail portfolio having a rental reversion of +7.5%, while its office property having a rental reversion of +2.8%.

Debt Profile (Q1 FY2023/24 vs. Q2 FY2023/24)

In the current high interest rate environment, when it comes to reviewing a REIT’s debt profile, I will want to make sure its aggregate leverage (or gearing ratio, as some REITs like to refer to it as) remains at around 40%, and at the same time, it has a high percentage (around 80%) of borrowings hedged to fixed rates (so the REIT will not be too “exposed” to the effects of fluctuating interest rates, which could lead to a hike in borrowing costs and thereby impacting its distribution payout to unitholders).

Just like how I have reviewed the REIT’s portfolio occupancy profile in the previous section, in the table below, you will find a comparison of its debt profile where I will be taking the figures reported for the current quarter under review (i.e., Q2 FY2023/24 ended 31 March 2024) compared against the previous quarter (i.e. Q1 FY2023/24 ended 31 December 2023) to find out if it is at healthy levels:

Q1 FY2023/24Q2 FY2023/24
Aggregate Leverage
(%)
37.2%38.5%
Interest Coverage
Ratio (times)
3.4x3.3x
Average Term to
Debt Maturity (years)
2.8 years3.1 years
Average Cost of
Debt (%)
4.3%4.2%
% of Borrowings Hedged
to Fixed Rates (%)
63.4%68.5%

My Observations: Mixed performance in my opinion – with its aggregate leverage climbing by another 1.3pp to 38.5%, and interest coverage ratio dipping slightly to 3.3x.

On the other hand, its average term to debt maturity was up to 3.1 years, average cost of debt fell by 0.1pp to 4.2%, and percentage of borrowings hedged to fixed rates improving by 5.1pp to 68.5% (even though it is still on the low side, but I’m encouraged by the improvements made in this area).

Looking at its debt maturity profile, in the 2nd half of FY2023/24, it has around 15.7% (or S$320.5m) of borrowings due for refinancing. Between FY2024/25 and FY2028/29 (a period of 4 years), it has approximately 21.2% of borrowing due in each financial year – which I consider to be pretty well-spread out.

Distribution Payout to Unitholders

The management of Frasers Centrepoint Trust declares a distribution payout on a half-yearly basis – once when it releases its results for the 1st half of the financial year, and another in the 2nd half.

For 1H FY2023/24, a distribution payout of 6.022 cents/unit was declared – compared to its payout of 6.130 cents/unit last year, this represented a 1.8% decline.

However, as the REIT have already paid out 4.25 cents/unit (amount declared between 01 October 2023 and 04 February 2024) prior to its private placement exercise to fund for the acquisition of Nex, you will only receive 1.772 cents/unit this time round (amount declared between 05 February and 31 March 2024).

Do take note of the following dates on the REIT’s distribution payout:

Ex-Date: 03 May 2024
Record Date: 06 May 2024
Payout Date: 30 May 2024

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

“FCT achieved a healthy set of results for 1H24 on robust operating performance. The Singapore suburban retail market remained resilient. Our portfolio achieved good leasing traction that underpinned better rental reversions and near-full occupancy across all our malls. Tenants’ sales and shopper traffic growth were also encouraging with some larger malls registering stronger traffic compared to pre-COVID levels.

We started 2024 on a strong footing with the acquisition of an additional 24.5% effective interest in NEX which brought our total effective interest in the mall to 50.0%; and the successful completion of an equity fund raising that raised S$200 million in gross proceeds to partially fund the acquisition. These actions strengthened our retail portfolio and financial position for FCT’s next phase of growth. We are executing the growth plans at NEX through asset enhancement initiatives (“AEI”), tenant remix strategy and rental improvements. We are also concurrently reviewing AEI plans for other malls in our portfolio and will announce them in due course. The AEI at Tampines 1 is on schedule to complete this September and thereafter contribute to its full capacity.

We remain positive on the outlook of the suburban retail sector in Singapore, and we believe FCT will continue to deliver stable and resilient performance going forward.”

Closing Thoughts

The decline in its financial performance for the first half of FY2023/24 was pretty much within expectations – due to lower contributions from Changi City Point which was divested in October 2023, as well as from Tampines 1, which is currently undergoing asset enhancement initiatives (I note from the previous section that works are scheduled to be completed and the mall once again contributing to the REIT’s revenue in full capacity.)

Portfolio occupancy continues to remain very strong, at 99.9%, with all of its retail malls having an occupancy rate of at least 99.5%. It was also encouraging to see the REIT securing a positive rental reversion for new and/or renewed leases for the first half of FY2023/24 (at +7.5% for retail and +2.8 for office).

Finally, for its debt profile, its aggregate leverage, at 38.5%, continues to remain healthy (and a good debt headroom before the regulatory limit of 50% is reached). More importantly, I’m happy to see a further increase in the percentage of borrowings hedged to fixed rates (which was up from 63.4% in Q1 FY2023/24 to 68.5% in Q2 FY203/24).

With that, I have come to the end of my review of Frasers Centrepoint Trust’s results for the 1st half of FY2023/24. Do take note that all the opinions you find in this post are purely mine which I’m sharing for educational purposes only. They do not constitute any buy or sell calls for the REIT’s units. 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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