Listed in Singapore since 2006, Frasers Centrepoint Trust (FCT) owns prime suburban retail malls and an office building in Singapore. FCT’s malls are mainly located at the heart of the respective town centres and in strategic locations with direct connectivity to public transport and residential areas. It is among the top 10 largest REITs in the country by market capitalisation.
With assets under management totalling S$6.5 billion, FCT’s portfolio caters to nearly 3 million residents in catchment areas and commuter traffic, encompassing roughly half of the country’s total population.
Here are 10 things I learned from the 2024 FCT AGM.
1. Gross revenue and net property income increased 3.6% and 2.7% year-on-year to S$369.7 million and S$265.6 million respectively in 2023 because of higher gross rental and atrium income. Shopper traffic rebounded strongly in 2023. Distribution per unit (DPU) was affected by higher interest expenses on the back of the rising interest rate environment. It dropped marginally from 12.227 cents in 2022 to 12.150 cents in 2023. Nonetheless, DPU has already surpassed 2019 pre-COVID levels since emerging from the pandemic.
2. FCT’s retail occupancy rate improved from 97.5% in 2022 to 99.7% in 2023. Tenants’ sales grew 7.3% year-on-year in 2023 and was 17% above pre-pandemic levels. As a result, occupancy cost dropped to a six-year low at 15.6% which gives FCT more headroom for favourable rental terms going forward; average portfolio rental reversions improved from 4.2% in 2022 to 4.7% in 2023.
3. Over the next two to three years, the influx of new retail space in Singapore is expected to be approximately 1.2 million square feet. This equates to a modest compound annual growth rate of around 1% according to CEO Richard Ng. He added that the limited incoming retail space is distributed across the island, with the majority not comprising full-scale malls but rather individual retail spaces.
The net lettable area of retail space per person in Singapore, particularly in the suburbs, is substantially lower compared to that of Hong Kong and Kuala Lumpur. Unlike other cities, retail assets in Singapore are not given top priority in land-use planning. As a result, the retail landscape in the suburbs is a landlord’s market.
4. Post-pandemic, retailers are gradually shifting from a traditional brick-and-mortar strategy to a click-and-mortar strategy. The CEO highlighted a reduction in consumer spending on e-commerce compared to the peak of the pandemic as shoppers return to shopping malls.
Demand for retail spaces in Singapore remains robust. Restaurants are increasingly reliant on food deliveries to enhance their productivity. Clothing retailers embrace a click-and-collect approach to entice consumers into visiting their stores, encouraging additional spending.
5. Gearing ratio increased from 33.0% in 2022 to 39.3% in 2023 as loans were drawn down to finance the acquisition of 25.5% stake in NEX and the additional 10.0% stake in Waterway Point. NEX is the largest suburban shopping mall in Northeast Singapore that enjoys strong shopper traffic.
The CEO explained to a unitholder that the partial acquisitions serve the purpose of securing assets without taking up too much debt in the face of elevated interest rates. Additionally, the management plans to incrementally increase its stake in high-quality partially-owned assets over time.
6. In Q1 2024, FCT’s gearing ratio dropped to 37.2% as proceeds from the divestment of Changi City Point and interest in Hektar REIT were used to pare down its debt. In Q1 2024, 63.4% of FCT’s borrowings were secured at fixed rates while its debt maturity is well distributed between 2025 and 2029. The refinancing of loans in 2024 was successfully completed ahead of schedule.
7. FCT’s investment cost in Hektar REIT averaged at approximately RM1.17 per share, with the divestment yielding an average price per share of RM0.87. Hektar REIT lost about 60% of its market capitalisation since April 2017. Its portfolio occupancy rate has been declining since 2016 while its DPU dropped an all-time low in 2020 and has since bounced back somewhat.
Factoring in the distributions received during the investment period, this investment yielded a positive return according to CFO Audrey Tan. The sale proceeds amounted to S$38.7 million, some of which was reinvested in asset enhancement initiatives (AEI) of Tampines 1, which is expected to generate a return of 7.8%.
8. At Tampines 1, almost all the spaces up for AEI are pre-committed to tenants. The AEI progressed well as per schedule and will be completed by September 2024. The full positive impact of the AEI will be captured in 2025.
The management strives to enhance and maximise the value of its properties, including Central Plaza, before considering any divestment. Assets that were divested such as Anchorpoint, Bedok Point, and YewTee Point were either small of around 80,000 square feet or not directly connected to train stations. The CEO thinks that malls need to be of certain sizes to do well in Singapore to provide diverse offerings to consumers.
9. The CEO clarified to unitholder that capitalisation rate expansion is more prominent in other countries than in Singapore. In fact, FCT’s cap rate increased from 4.3% upon the divestment of Changi City Point to now around 4.7%. This shows the strength of the REIT’s existing assets.
10. The management will continue monitor the potential impact of the Johor Bahru-Singapore Rapid Transit System (RTS) Link closely on FCT’s assets. A unitholder brought up the potential impact of more Singaporeans flocking to Johor Bahru and abandoning Singapore malls once the RTS Link is completed. The CEO reassured him that more than half of FCT’s gross rental income was derived from essential trades and FCT’s malls will remain relevant.
The CEO is cautious of FCT’s expansion beyond Singapore and aware of associated risks like foreign exchange risk and retail supply glut (e.g. in Johor). Among FCT’s assets, Causeway Point is located closest to Johor Bahru and will be most likely impacted. At the same time, the CEO thinks Causeway Point could potentially benefit from the flow of people as a key transportation hub.
The fifth perspective
In Singapore’s tight retail market, prime suburban spaces are in high demand, driven by population growth and sustained consumer spending on essentials. FCT is well-positioned for further growth in this favourable environment.
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