Frasers Centrepoint Trust’s Latest Earnings: What Investors Need to Know

Frasers Centrepoint Trust (SGX: J69U) had released its fiscal third-quarter earnings report yesterday evening. The reporting period was from 1 April 2015 to 30 June 2015.

The real estate investment trust’s (REIT) portfolio consists of six sub-urban shopping malls. Causeway Point and Northpoint are two particularly important malls for Frasers Centrepoint Trust as they make up a significant portion of its sales and income. The REIT also holds a 31.2% stake in Hektar Real Estate Investment Trust (H-REIT).

You can read more about Frasers Centrepoint Trust here, or catch up with the previous quarter’s earnings here.

Financial highlights

Here’s a quick take on Frasers Centrepoint Trust’s latest financial figures:

  1. For the reporting quarter, gross revenue rose to $47.2 million, up 14.3% from the same quarter a year ago.
  2. Quarterly net property income (NPI) rose by 12.8% year over year from $29.1 million to $32.9 million as a result.
  3. Share of associate’s results – which covers Frasers Centrepoint Trust’s ownership in H-REIT – rose 28.2% from $0.8 million in the same quarter a year ago to $1.1 million in the reporting quarter.
  4. The REIT’s distribution per unit (DPU) for the fiscal third-quarter was 3.036 cents, up just 0.5% from a year ago. .
  5. Frasers Centrepoint Trust reported a 3.9% year over year increase in its adjusted net asset value per unit from $1.78 to $1.85.

Beyond these, the REIT’s debt profile is also something important to keep an eye on. The debt profile may provide clues on how the REIT is funded and its sensitivity to the interest rate environment. These are summarised for Frasers Centrepoint Trust below:

2015-07 FCT Debt Table

Source: Fraser Centrepoint Trust’s earnings presentation

As of 30 June 2015, the REIT’s weighted average debt to maturity was 2.15 years – that’s a relatively short period. Foolish investors should keep an eye out for the refinancing of Frasers Centrepoint Trust’s borrowings for FY2016 (fiscal year ending 30 September 2016) and FY2017; over the period mentioned, 63.4% of its borrowings will become due.

Meanwhile, Frasers Centrepoint Trust had done a nice job in strengthening its balance sheet since the end of FY2014. From the table above, the REIT’s gearing had stepped down, its interest cover had gone up, its financing cost (i.e. interest expenses) had declined, and its borrowings have decreased.

The only snag is that the percentage of its borrowings with fixed rates had slipped; the disadvantage to Frasers Centrepoint Trust is that this makes the REIT’s interest expenses in the future more susceptible to swings in the interest rate environment, keeping in mind that there’s a possibility for interest rates to rise in the future.

Operational highlights

For the reporting quarter, Changi City Point, which was acquired in June 2014, accounted for the majority of the rise in Frasers Centrepoint Trust’s revenue and NPI. Together with Causeway Point and Northpoint, the trio of properties make up 85% of the REIT’s NPI.

Overall portfolio occupancy stood at 96.5%, down from the selfsame figure of 98.5% seen a year ago. Of the six properties in the REIT’s portfolio, Bedok Point continues to be the laggard of the group with an occupancy of just 84.9%. The REIT ended 30 June 2015 with a weighted average lease expiry of 1.6 years.

On a brighter note, the REIT’s overall shopper traffic (excluding Changi City Point) for the reporting quarter increased by 3.6% on a year over year basis. This metric may be important to note – if tenants are able to enjoy higher sales, Frasers Centrepoint Trust may have a better chance of striking positive rental reversions for the leases in its malls.

Looking forward, Dr Chew Tuan Chiong, Chief Executive Officer of the REIT’s Manager, had this statement to add:

“Our portfolio of suburban malls continues to deliver stable performance and underpinned another good quarter of results.

Shopper traffic at our malls, excluding Changi City Point which was acquired last June, improved 3.6% during the quarter compared to the same period a year ago. Causeway Point and Northpoint registered good shopper traffic growth of 4.4% and 6.6%, respectively.

The improved shopper traffic can be attributed to advertising and promotional events held during the quarter, such as the month-long “Ultimate Frasers Sales” and events to celebrate Mother’s Day. Tenants’ sales rose about 2.2% year-on-year for the 3-month period ended May 2015, driven mainly by our largest mall Causeway Point.

The Ministry of Trade and Industry reported that Singapore’s economy contracted 4.6% in the second quarter. Given the tight labour market, the retail scene continues to remain challenging. Rental and occupancy at FCT’s well located suburban malls is expected to remain stable. Barring unforeseen circumstances, we expect performance to remain sustainable.”

Foolish summary

Frasers Centrepoint Trust closed at S$2.06 yesterday. This translates to a historical price-to-book ratio of 1.1 and a distribution yield of around 5.6%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.