Frasers Centrepoint Trust (FCT) is an SGX-listed real estate investment trust that owns retail malls located in the suburban regions of Singapore. FCT’s portfolio of properties, comprising nine quality suburban retail malls and one office property, is worth S$6.1 billion as of 30 September 2021.
FCT has a fantastic track record even among retail REITs in Singapore; it has 15 consecutive years of distribution growth, aside from 2020 due to the pandemic. Things appear to be looking up for the local retail scene as Singapore moves toward treating COVID-19 as an endemic disease and pandemic measures slowly ease.
Here are the eight things I learned from the 2022 Frasers Centrepoint Trust AGM.
1. Revenue grew 107.5% year-on-year to S$341.1 million for FY2021 while net property income (NPI) grew 122.4% to S$246.6 million. FCT’s strong financial performance was mainly due to the contributions from the enlarged retail portfolio following the ARF acquisition in October 2020 and the lower rental rebates granted to tenants in FY2021. The increase was also partially offset by the loss of gross revenue from the divestments of Bedok Point, Anchorpoint and Yew Tee Point in FY2021.
2. Distribution per unit (DPU) grew 33.7% year-on-year to 12.085 cents compared to 9.042 cents a year ago. Distributable income also increased by 102.4% in FY2021 to S$204.7 million. FCT has an established track record of DPU growth from FY2007 to FY2019; its DPU growth was achieved by a combination of acquisitions, asset enhancement initiatives, and organic growth.
3. Gearing ratio as of 30 September 2021 is 33.3% – one of the lowest among Singapore REITs. FCT gearing ratio is also well within the 50% limit set by the Monetary Authority of Singapore. Average debt maturity is 2.47 years and 56% of debt is hedged at fixed interest rates. FCT’s total borrowings amounted to S$1,815.0 million as of 30 September 2021.
4. Portfolio occupancy rates stood at 97.3% as at 30 September 2021, higher than a year ago at 94.9%. FY2021 has shown that the retail sector is starting to pick up as we slowly return to pre-pandemic levels.
5. The management is focused on three strategies will promote FCT as a leading retail REIT that delivers regular and stable distributions to unitholders: (1) Acquisition growth, (2) asset enhancement initiatives, and (3) organic growth. FCT will be actively exploring for acquisitions from its sponsor — Frasers Property — and third parties which will drive FCT’s long-term growth. FCT’s will seek AEIs to upgrade its properties to improve asset yield and enhancement in capital value. FCT will also aim to optimize tenant mix to increase shopper traffic, and maintain healthy rental reversions for its organic growth.
6. A unitholder pointed out that the occupancy rate for some malls (e.g., Century Square) has dropped. What are some actions/ideas the management team has taken to address the low occupancies especially the higher floors of Century Square? The management explained that in the case of Century Square, a bulk of its tenant leases expired in FY2021. The timing of the expirations, which coincided with periods of heightened pandemic restrictions, resulted in a lower occupancy rate of 91.8% as at end of FY2021.
The management said that as of 4Q FY21, popular F&B brands have opened at Century Square. On the upper floors, shoppers will notice a new Chinese supermarket brand has announced its opening in February 2022. The mall has also signed up new tenants in categories such as enrichment, sports apparel, and beauty services which will be opening in the subsequent months.
7. A unitholder asked if FCT had any intentions to expand beyond Singapore and/or other asset classes other than suburban malls. The management stated that FCT will continue to remain focused on its core competence in the Singapore suburban retail sector. The management will review FCT’s business strategy regularly and an entry into new countries and/or asset class will be carefully evaluated. The management reiterated its promise to deliver long-term benefits in value creation and sustainable distribution returns to FCT and its unitholders.
8. Securities Investors Association (Singapore) highlighted the increase in asset management fees for the manager (128%) when DPU only increased by 2.8%. The management explained that its fee comprises of a base fee (0.03%) of the value of FCT and an annual performance fee of 5% per annum of the net property income (NPI) of FCT. The increase in fees was due to an enlarged portfolio following the ARF acquisition.
The management explained that the enlarged portfolio helps FCT achieve better economies of scale, diversification, strengthens its tenant base, and enhances its competitiveness in the capital markets. They added that FCT has consistent delivered higher DPU and NAV every year since FY2007, except for years affected by the pandemic.
The fifth perspective
FCT transitioned to half-yearly dividend payments with effect from last year. As DPU and revenue have recovered to pre-pandemic levels, the management has a positive outlook for 2022.
FCT’s portfolio remains Singapore-centric focus which means it will remain as the only pure play Singapore retail REIT. Other Singapore retail REITs – CapitaLand Integrated Commercial Trust, Mapletree Commercial Trust (post-merger), Starhill Global REIT, and SPH REIT – own relatively more diversified portfolios which also include office and/or overseas assets.
As of now, the dividend yield of FCT is 5.2%, which is near its 10-year average of 5.3%. With its strong track record of growing dividends, FCT is a REIT that you would consider adding into your portfolio when valuations are right.
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