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

Last Friday, Frasers Commercial Trust  (SGX: ND8U) released its third-quarter earnings for its financial year ending 31 September 2016 (FY2016). The reporting period was from 1 April 2016 to 30 June 2016.

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

You can catch up with the results from the REIT’s previous quarter here.

Financial highlights

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

  • Gross revenue rose to $38.5 million in the reporting quarter, up over 11% from the same quarter a year ago.
  • Net property income (NPI) rose by 15.6% year-on-year to $28.1 million.
  • Distribution per unit (DPU) for the third-quarter of FY2016 was 2.41 cents. This represents a 2.6% increase from the corresponding quarter last year.
  • Frasers Commercial Trust’s property portfolio is valued at $1.96 billion, as of 30 June 2016. 62% of the portfolio’s value resides in Singapore; the rest is in Australia.
  • The REIT reported an adjusted net asset value per unit of $1.50, down from the $1.54 seen in the same quarter a year ago.

Beyond the above, 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 summarised for Frasers Commercial Trust below:

Frasers Commercial Trust Q2 2016 balance sheet
Source: Fraser Commercial Trust’s earnings presentation

The REIT increased its total borrowings from $689 million a year ago to $737 million. But, the REIT also managed to widen its hedged borrowings to 81%, increase its interest coverage ratio, and lower its average borrowing rate slightly.

As of 30 June 2016, the REIT’s weighted average debt to maturity is 2.6 years. There is no debt coming due on FY2016.

Operational highlights

Frasers Commercial Trust’s overall portfolio occupancy rate is at 93.3%, as of 30 June 2016. The weighted average lease expiry (by gross rental) is 3.1 years. These are both lower compared to a year ago – the selfsame figures as of 30 June 2015 were 95.1% and 3.4 years.

Low Chee Wah, chief executive of the REIT’s manager, summed up the quarter with a few words:

“We are pleased to deliver another quarter of good performance and growth in distributable income to Unitholders despite the weaker economic outlook. Alexandra Technopark and 357 Collins Street continued to boost the performance of the Trust during the quarter.

Our focus on proactive asset management and leasing initiatives has yielded positive results. During the quarter, we have reduced the lease expiries to 1.5% for the remaining financial year despite the challenging leasing environment in the Singapore office market, compared to 6.4% in the previous quarter.”

Low was also pleased to share that a subsidiary of technology giant Microsoft, one of the REIT’s long term tenants, had extended its lease ahead of time. Microsoft extended its tenancy up till FY22. The original lease was supposed to expire in early 2017.

A future outlook

Moving to Frasers Commercial Trust’s outlook, Low gave the following statements in the earnings release:

“The Trust’s Singapore office properties continue to demonstrate resilience despite the weaker Singapore office market outlook and economic environment.

With our dedicated and proactive management of leases, lease expiries for the remainder of this financial year are minimal and are only in the Singapore properties. The well spread lease expiries of the portfolio will provide income stability to the Trust in the long term.

Amidst the weaker economic environment and the Singapore office market, we will continue to focus on maintaining healthy occupancy rates through our proactive leasing efforts while pursuing strategies to generate long-term and sustainable distributions for our Unitholders.”

Investors may want to note that 2016 will see an unusual spike in the new supply of office space in Singapore.

Frasers Commercial Trust’s units closed at a price of $1.35 last Friday. This translates to a historical price-to-book ratio of 0.9 and a trailing distribution yield of 7.8%.

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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.