What’s next for Frasers Commercial Trust after Achieving Record High Distributions?

Frasers Commercial Trust (SGX: ND8U) released its full-year results yesterday after the market closed. The real estate investment trust owns a portfolio comprised of five commercial real estate properties in Singapore and Australia. It is sponsored and managed by Frasers Centrepoint Limited (SGX: TQ5).

Financial performance

For the financial year ended 30 September 2014 (FY2014), gross revenue and net property income for Frasers Commercial Trust remained essentially flat at S$118.8 million and S$90.6 million, respectively, compared to a year ago. Improved performance from China Square Central and higher contribution from the underlying leases of Alexandra Technopark were offset by weaker performances from the REIT’s Australian properties due to a weaker Australian dollar.

Despite the mediocre top-line performance, Frasers Commercial Trust’s distribution per unit (DPU) for FY2014 was at a record high of 8.51 Singapore cents, up 8.7% year-on-year. The growth in DPU is primarily attributed to lower distributions paid to holders of its Convertible Perpetual Preferred Units ( it was just S$21,000 in FY2014 as compared to S$7.42 million a year ago). Preferred Units have a higher priority to receive distributions as compared to ordinary unit-holders – with lesser Convertible Perpetual Preferred Units around in FY2014, there was more of the pie to distribute to owners of the REIT’s ordinary units.

As of 30 September 2014, Frasers Commercial Trust  has a gearing ratio of 37.1% and an average annual borrowing rate of 2.7%. In addition, the REIT has managed to refinance its borrowings with unsecured facilities such that the earliest maturity for its borrowings starts from FY2017, which is 3 years from now. With the refinancing of its loans, Frasers Commercial Trust’s weighted average debt maturity has been extended from 1 year to 4.3 years.

Moving ahead

In its earnings release, Frasers Commercial Trust is expecting steady rental growth “in the next few quarters” in its Singapore portfolio due to the supply squeeze from low vacancy and steady demand for high quality commercial properties.

In contrast, the REIT’s Australian portfolio is facing stronger headwinds. For instance, Perth’s Central Business District is likely to experience declining office rents going forward as more supply will be floating onto the market come FY2015. But, the REIT thinks that the outlook is still positive in Western Australia (the company’s key market in the country) for two main reasons: 1) construction activities are shifting from resource to housing; and 2) resource projects in the State are starting to generate returns, which can supply the State with capital to fund more infrastructure development.

Low Chee Wah, Chief Executive Officer of the manager of Frasers Commercial Trust, seems happy with the results for FY2014. He commented:

“The Manager has laid a strong foundation for the future growth of the Trust. The properties in Singapore are poised to benefit from the continuous uptrend in rents, given the rental reversionary potential of the properties. Going forward, the Manager will continue its strategy of growing the Trust through organic and inorganic means.”

Frasers Commercial Trust last changed hands at S$1.36 on Monday, translating to a price-to-book ratio of 0.85 and a distribution yield of 5.8%. The REIT’s net asset value per unit stands at S$1.59.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.