Frasers Centrepoint Trust’s Earnings: Revenue Retreats But Distributions Hold Steady

Last Friday, Frasers Centrepoint Trust  (SGX: J69U) released its third-quarter earnings for its fiscal year ending 30 September 2016 (FY2016). The reporting period was from 1 April 2016 to 30 June 2016.

As a brief background, Frasers Centrepoint Trust is a real estate investment trust (REIT) with ownership stakes in six sub-urban shopping malls located in Singapore. Causeway Point, Northpoint, and Changi City Point are part of the six and they make up a significant portion of the REIT’s revenue and income.

Elsewhere, Frasers Centrepoint Trust also holds a 31.2% stake in Malaysian retail mall owner Hektar Real Estate Investment Trust (H-REIT).

You can read more about the REIT in here, or catch up with the previous earnings here.

Financial Highlights

The following’s a quick rundown on some of the latest financial figures for Frasers Centrepoint Trust from the earnings release:

  1. Gross revenue fell to $45 million in the reporting quarter, down 4.4% from the same quarter a year ago.
  2. Quarterly net property income (NPI) also fell by 5.1% year-on-year to $31.2 million.
  3. Share of associate results (operations), which covers Frasers Centrepoint Trust’s ownership in H-REIT, fell 15.7% from $1.1 million a year ago to $917,000 in the reporting quarter.
  4. Thankfully, the REIT’s distribution per unit (DPU) for the third-quarter of FY2016 was 3.040 cents, a slight 0.1% increase from the 3.036 cents seen in the third-quarter of FY2015.
  5. The REIT’s property portfolio was valued at $2.46 billion as of 30 June 2016. It also reported a net asset value per unit of $1.90 at the end of the reporting quarter, up 2.7% from the $1.85 seen a year ago.

Beyond the above, investors may also want to keep an eye on a 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 summarised for Frasers Centrepoint Trust below:

2016-07-15 FCT Debt Table
Source: Fraser Centrepoint Trust’s earnings presentation

As of 30 June 2016, the REIT’s weighted average debt to maturity was 2.0 years. The cost of borrowing was 2.259% in the reporting quarter, an improvement from the 2.3% recorded on 30 June 2015. Meanwhile, the interest coverage ratio had improved alongside the lower financing cost. Total borrowings, though, ticked up slightly.

Earlier this month on 4 July 2016, Frasers Centrepoint Trust also refinanced a good slug of its $159 million in debt coming due in in FY2016 ($136 million was refinanced). The REIT expects its fixed interest rate debt percentage to fall to under 60% after the refinancing.

Based on figures seen as of 30 June 2016, Frasers Centrepoint Trust does not have a single fiscal year in which over 26.1% of its total borrowings come due.

Operational highlights

Frasers Centrepoint Trust’s top-line fell mainly due to lower revenue from Northpoint. This was due to the asset enhancement initiative (AEI) that will be carried out in two phases.

The first phase, which is from March 2016 to October 2016, is ongoing. The second phase will occur from January 2017 to September 2017. Previously, the REIT’s manager expected the average mall occupancy to fall to 76% from March 2016 to September 2016. But, the REIT manager was able to keep occupancy above 81% between April and June.

Dr Chew Tuan Chiong, the chief executive officer of the REIT’s manager, had a brief comment to share on the AEI in the earnings release:

“The asset enhancement works at Northpoint are progressing on schedule. While the works have been phased to minimise income disruption, there will be impact to rental revenue for the mall.”

Overall portfolio occupancy for Frasers Centrepoint Trust stood at just under 91%. Northpoint recorded an occupancy rate of 81.3% for the reporting quarter. Another laggard was Changi City Point, which had an occupancy rate of 81.3% as well. The decline in occupancy rate led to the latter posting a 6.1% decline in revenue.

As a whole, the REIT’s weighted average lease expiry (by gross rent) was 1.44 years. Overall shopper traffic in the third-quarter was down by 0.4% on a year-on-year basis. Changes in shopper traffic would be something to observe over time.

Dr Chew also rounded up the quarter with the following statements in the earnings release:

“FCT [Fraser Centrepoint Trust] continues to deliver steady performance in 3Q16, which keeps our nine months year-to-date DPU on positive track compared to last year. We continue to maintain tight watch over our financial position and borrowing costs amidst these volatile times.

The growth in the overall retail sector remains tepid, as seen in April’s 3.0% year-on-year decrease in the Singapore retail sales index (excluding motor vehicle sales). Nevertheless, FCT’s well-located suburban malls are expected to remain resilient.”

Frasers Centrepoint Trust closed at a unit price of $2.12 last Friday. This translates to a historical price-to-book ratio of 1.1. The REIT also has a trailing 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 owns units in Frasers Centrepoint Trust.