Frasers Commercial Trust’s Earnings: What Investors Need to Know

Earlier this morning, Frasers Commercial Trust  (SGX: ND8U) released its second-quarter earnings report for its fiscal year ending 30 September 2016 (FY2016). The reporting period was from 1 January 2016 to 31 March 2016.

The real estate investment trust (REIT) currently has ownership stakes in six commercial properties located in Singapore and Australia. Its portfolio in Singapore includes China Square Central and Alexandra Technopark.

Financial highlights

The following’s a rundown of the latest important financial figures for Frasers Commercial Trust:

  1. Gross revenue rose to $39 million in the reporting quarter, up 12% from the same quarter a year ago.
  2. Net property income (NPI) also rose by 17% year-on-year to $28.8 million.
  3. Distribution per unit (DPU) for the reporting quarter was 2.45 cents. This is up 2.9% from the corresponding quarter last year.
  4. Frasers Commercial Trust’s property portfolio was valued at $1.98 billion, as of 31 March 2016. The REIT ended the reporting quarter with an adjusted net asset value per unit of $1.53, down 1.3% from the $1.55 seen a year ago.

Beyond these, Foolish investors might want to keep an eye on the REIT’s debt profile. The debt profile may provide clues on how the REIT is funded and its sensitivity to the interest rate environment. These are summarized for Frasers Commercial Trust below:

Frasers Commercial Trust balance sheet (21 April 2016)
Source: Frasers Commercial Trust’s earnings presentation

With reference to the table above, Frasers Commercial Trust’s average borrowing rate had inched up to 3.07%. At the same time, the REIT increased its total borrowings from $689 million to $743 million.  But, the REIT also managed to widen its hedged borrowings to 81%, lowered its gearing ratio, and saw its interest coverage ratio increase.

As of 31 March 2016, the REIT’s weighted average debt to maturity was 2.8 years. There is no debt coming due on FY2016.

Operational highlights

The REIT’s overall portfolio occupancy stood at 92.6%, as of 31 March 2016. This is a fall from the 96.5% seen a year ago. The portfolio’s weighted average lease expiry at the end of the reporting quarter was 3.3 years.

Frasers Commercial Trust also managed to achieve positive rental reversions for new and renewed leases that commenced in the reporting quarter. This happened “despite the challenging leasing market.”

Low Chee Wah, the chief executive of Frasers Commercial Trust’s manager, summed up the REIT’s quarter with a few words in the earnings release:

“We are pleased to deliver a good performance and growth in distributable income to Unitholders amid the weaker economic outlook.

The good performance of the Trust was bolstered by Alexandra Technopark and Caroline Chisholm Centre and the contribution from 357 Collins Street, which was acquired in August 2015 and has a full occupancy rate. This yield accretive acquisition will provide stability to the Trust and strengthen the distributions in the longer term.

Low also added the following statements regarding the REIT’s outlook:

“The properties in Singapore continued to achieve positive rental reversions despite the weaker Singapore office market outlook and challenging leasing environment. This is a testament of the resilience of the Trust’s Grade B offices in Singapore.

For the remainder of this financial year, the lease expiries are low and are mainly in the Singapore properties. With the headwinds in the Singapore office market, we will continue to be dedicated and proactive in our leasing initiatives. Construction works for the Hotel and Commercial Project at China Square Central are on track and we look forward to the continued transformation and rejuvenation of China Square Central.

In the meantime, we will continue to focus on creating and unlocking value of our properties and pursue acquisitions to generate long-term and sustainable distributions for our Unitholders.”

Foolish summary

Frasers Commercial Trust’s units opened at $1.30 this morning. This translates to a historical price-to-book ratio of 0.85 and a trailing distribution yield of 7.6%.

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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.