Frasers Centrepoint Trust (SGX:J69U) is a predominantly suburban retail mall REIT, where at the time of writing, its property portfolio comprises a total of 9 retail REITs located in the various suburban locations in Singapore (the properties include Causeway Point, Northpoint City, Waterway Point, Changi City Point, Tampines 1, Century Square, White Sands, Tiong Bahru Plaza, and Hougang Mall), along with 1 commercial property (Central Plaza located in Tiong Bahru.)

Early this morning (26 October 2022), the REIT have made available its financial results for the 2nd half, as well as for the full-year ended 30 September 2022 (i.e. FY2021/22), and in this post, you’ll find my review of its financial results, portfolio occupancy and debt profile, as well as its distribution payout to unitholders.

Let’s begin:

Financial Performance (2H FY2020/21 vs. 2H FY2021/22, and FY2020/21 vs. FY2021/22)

In this section, let us take a look at the REIT’s financial performance for the 2nd half of the year under review (where I will be comparing it against that reported in the same time period last year – i.e. 2H FY2020/21), as well as for the full-year (i.e. FY2020/21 vs. FY2021/22):

2H FY2020/21 vs. 2H FY2021/22:

My Observations: Stable set of results for the second half of the financial year – gross revenue was up by 7.9% due to the absence of rental rebates provided to tenants, increase in atrium income with the resumption of atrium events from 29 March 2022, and partially offset by the loss of gross revenue from YewTee Point (divested in May 2021.)

As a result of a 12.9% climb in its property operating expenses, mainly due to higher property tax expenses, marketing expenses, as well as more ad-hoc maintenance works carried out during the current period under review (compared to the same time period last year), its net property income saw a slower rate of growth (compared to its gross revenue) at 6.0%.

Finally, the distributable income to unitholders for 2H FY2021/22 included the release of a $4.8m of its taxable income available for distribution to unitholders which was retained in the first half of the financial year. Compared to the amount recorded last year, it was rather muted.

FY2020/21 vs. FY2021/22:

My Observations: The suburban retail REIT’s results on a full-year basis, compared to the previous financial year, was a rather muted one in my opinion – with its gross revenue, net property income, as well as distributable income to unitholders all growing at just a low single-digit percentage.

The 4.6% improvement in its gross revenue was mainly due to the full year contribution from the enlarged retail portfolio following the ARF acquisition on 27 October 2020, absence of rental rebates provided to tenants, along with an increase in atrium income with the resumption of atrium events from 29 March 2022. However, this was offset by a loss of gross revenue from the divested properties – Bedeck Point, Anchorpoint, as well as YewTee Point.

Property operating expenses increased by 4.0% compared to last year, as a result of property expenses incurred from the properties in ARF’s portfolio, higher marketing expenses, along with more ad-hoc maintenance works carried out during the period. However, this was offset by the absence of property expenses from the 3 divested properties.

Finally, its net property income went up by 4.9% to S$258.6m (FY2021/22: S$246.6m.)

Portfolio Occupancy Profile (Q3 FY2021/22 vs. Q4 FY2021/22)

Moving on, let us take a look at the REIT’s portfolio occupancy profile, where I will be comparing the statistics reported for the current quarter under review (i.e. Q4 FY2021/22 ended 30 September 2022) against that reported in the previous quarter 3 months ago (i.e. Q3 FY2021/22 ended 30 June 2022):

My Observations: In my opinion, Frasers Centrepoint Trust’s portfolio occupancy profile continues to remain resilient – with its portfolio occupancy up by 0.4 percentage point (pp) to 97.5%, as a result of increases in occupancy in a majority of the properties in its portfolio, namely Causeway Point (up from 98.3% in Q3 FY2021/22 to 100.0% in Q4 FY2021/22), Tampines 1 (up from 97.8% in Q3 FY2021/22 to 99.1% in Q4 FY2021/22), Tiong Bahru Plaza (up from 98.2% in Q3 FY2021/22 to 99.0% in Q4 FY2021/22, Century Square (up from 83.0% in Q3 FY2021/22 to 86.8% in Q4 FY2021/22), White Sands (up from 95.3% in Q3 FY2021/22 to 96.4% in Q4 FY2021/22), as well as Central Plaza (up from 77.0% in Q3 FY2021/22 to 88.9% in Q4 FY2021/22.)

Rental reversions continued to remain in positive territory, at +4.2% for its retail portfolio, and +2.4% for Central Plaza (which is an office property.)

Finally, as far as lease expiries are concerned, most of the leases will be expiring over the next 3 financial years – with 30.1% of the leases (by GRI) and 27.6% of the leases (by NLA) expiring in the coming financial year 2022/23, 34.4% of the leases (by GRI) and 35.0% of the leases (by NLA) expiring in FY2023/24, and 22.5% of the leases (by GRI) and 25.2% of the leases (by NLA) expiring in FY2024/25.

Debt Profile (Q3 FY2021/22 vs. Q4 FY2021/22)

As far as my review of a REIT’s debt profile is concerned, I will also be comparing the statistics reported for the current quarter under review (i.e. Q4 FY2021/22 ended 30 September 2022) against that reported in the previous quarter 3 months ago (i.e. Q3 FY2021/22 ended 30 June 2022) to find out whether or not it has continued to remain healthy:

My Observations: There are positive and negative points to note about its debt profile – first the positives: aggregate leverage was down to 33.0% (and at this level, it is still a good distance away from the regulatory limit of 50.05), and percentage of borrowings hedged to fixed rates went up slightly to 71% (but despite having said that, its still among one of the lowest in all the REITs I have invested in, and that said, to a certain extent, the REIT’s distribution in the coming quarters may be impacted by the upcoming interest rate hikes.)

On the other hand, the REIT’s average cost of debt have edged up slightly to 2.5% – and I foresee this percentage to climb in the coming quarters as the REIT have 21.5% (or S$391m) of borrowings maturing in the coming FY2022/23 ahead. Also, most of the REIT’s borrowings will be maturing in the coming years ahead – with another 26.0% (or S$472m) of its borrowings maturing in FY2023/24, and 28.2% (or S$511m) of its borrowings maturing in FY2024/25.

Distribution Payout to Unitholders

As the REIT’s management declares a distribution payout to unitholders on a half-yearly basis, for the 2nd half of the current financial year under review (period between 01 March and 30 September 2022), a distribution per unit of 6.091 cents was declared – which is about the same as the amount of 6.089 cents declared in the same time period last year (i.e. 2H FY2020/21.)

If you are a unitholder of the REIT, do take note of the following dates on its distribution payout:

Ex-Date: 02 November 2022
Record Date: 03 November 2022
Payout Date: 29 November 2022

Together with its payout of 6.136 cents/unit in the first half of the current year under review, this amounts to a total of 12.227 cents/unit – and this represents a 2.3% increase compared to the payout of 11.953 cents/unit declared in the previous financial year (i.e. FY2020/21.)

Management’s Outlook [from the REIT’s Press Release]

“The Ministry of Trade and Industry (the "MTI") has revised its GDP growth forecast for 2022 to "3.0 to 4.0 per cent"7 from "3.0 to 5.0 per cent" in the earlier projection, taking into account the GDP performance in the first half of 2022 and the latest global and domestic economic developments. The MTI noted that Singapore has transited to living with COVID-19 with the progressive removal of almost all of its domestic and border restrictions. This has in turn supported the recovery of segments of the Singapore economy that had been badly affected by the pandemic. The Department of Statistics ("DOS") has reported a 16.2% year-on-year increase in retail sales (excluding motor vehicle) for August 2022, extending the 18.4% increase in July 2022. The food & beverage (F&B) services grew by 40.2% year-on-year in August, extending the 41.9% increase in the previous month. DOS noted the strong F&B growth was mainly attributed to the low base in August 2021, when the safe distancing measures and group restriction measure were still in place.

Rising interest rates, cost inflation pressures and global geopolitical tensions are key factors that impact financing costs and operating expenses. The Manager also notes the development of the new strain of COVID-19 ("XBB sub-variant") in Singapore. Due to multiple increases in the federal funds rates by the U.S. Federal Reserve in 2022, interest rates have risen significantly. The Manager expects the average cost of borrowing for FCT to rise above 3% in FY2023 from 2.5% currently. The Manager has hedged 71% of its borrowing on fixed interest rates to mitigate the risk of interest rate rise.

The Manager is also closely monitoring other cost factors such as energy prices and contracted service fees and would take appropriate hedging strategies to mitigate impact to its operating expenses. The Manager sees several opportunities to mitigate the impact on FCT's financial performance. These opportunities include active property and asset management, and AEI. The Manager announced on 12 September 2022 the proposed acquisition of an additional 10.0% interest in Waterway Point to raise its stake from 40.0% to 50.0%. This acquisition will increase the mall's income contribution to FCT in FY2023.

FCT's portfolio of high-quality suburban retail properties has strong competitive advantages with its proximity to residential homes and transportation nodes, and it is well-positioned to ride on rising trends such as hybrid work arrangement and the shift to omnichannel retailing.”

Closing Thoughts

Looking ahead, with a lack of acquisitions, growth in the REIT’s gross revenue will have to depend on whether they are able to renew expiring leases (I note that 30.1% of the leases (by GRI) and 27.6% of the leases (by NLA) expiring in the next financial year 2022/23) on favourable terms. Another thing which could probably see an increase in its gross revenue would be asset enhancement initiative works to some of its malls to maximise the use of spaces, although it’ll take some time before such activities will be able to contribute to the REIT’s results positively.

Additionally, I note that only 71% of the REIT’s borrowings have been hedged to fixed rates so far – which is on the low side (in my opinion.) As a result, its distribution payout in the coming quarters may be impacted by the rise in average cost of debt (I note that the REIT has 21.5% (or S$391m) of borrowings maturing in the coming FY2022/23 ahead – so the refinancing of these borrowings may lead to the average cost of debt going up further, due to interest rate hikes.) I will continue to monitor this in the coming quarters ahead.

However, its not all gloomy for the REIT – it is good to note that most of the REIT’s retail malls have seen an increase in their occupancy rates, with all but Century Square having an occupancy rate of more than 90%. Another thing to note is the positive rental reversion recorded for new/renewed leases – for its retail spaces, and its office space in Central Plaza, which can contribute positively to its gross revenue in the quarters ahead.

With that, I have come to the end of my review of Frasers Centrepoint Trust’s latest results for the second half, as well as for the full-year ended 30 September 2022. Please note that all the opinion above is purely mine which I’m sharing for educational purposes only. They do not represent any buy or sell calls for the REIT’s units. You’re strongly advised to do your own due diligence before making any investment decisions.

Related Documents

• Press Release
• Financial Statements
• Presentation Slides

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