Frasers Centrepoint Trust Has 3 Weak Areas Investors Should Know

Every company or real estate investment trust (REIT) will have their weaknesses. If you haven’t found at least one in any company or REIT, you may not have looked hard enough. In fact, you might want to look again.

In that spirit, I would like to share three findings from Frasers Centrepoint Trust’s (SGX: J69U) latest annual report that point to weak areas that exist in its business. The REIT owns six retail properties in Singapore and has a 31.2% stake in the Malaysia-listed Hektar REIT.

1. Shopper traffic is down in three malls

Shopper traffic is up overall for Frasers Centrepoint Trust in its fiscal year ended 30 September 2016 (FY2016). But, half of its malls suffered declines in traffic. Bedok Point and Anchorpoint posted declines of 6.4% and 5.6%, respectively. What could really be a cause of concern though, is the decline of 1.2% in shopper traffic at Causeway Point.

In FY2016, Causeway Point accounted for 45.2% of Frasers Centrepoint Trust’s total revenue and 48% of its net property income.

2. Competition is set to get tougher

Things are expected to get tougher for two of the REIT’s malls.

Frasers Centrepoint Trust noted in its annual report that Viva Business Park, a 120,400 square feet development in Bedok Point’s vicinity, is expected to pose competition for the mall. The business park has been introducing more dining options and has a popular anchor tenant in sports retailer Decathlon.

Elsewhere, Changi Airport Group and CapitaLand Malls Asia are developing Project Jewel, a regional retail mall, in Changi Airport. The 576,000 square feet development is expected to come online in 2018.

The REIT said that Project Jewel will have an impact on both Bedok Point and Changi City Point. It also added that both malls need to deliver a stronger value proposition to remain competitive. Meanwhile, online shopping remains an ever-present threat.

3. An oversupply in retail space

Frasers Centrepoint Trust also said in its annual report that the supply of new retail space outstripped retailers’ need for space between the fourth quarter of 2015 and the third quarter of 2016. For the period, the REIT mentioned that the cumulative demand of 776,400 square feet was below the cumulative supply of 1.3 million square feet.

This has led to lower occupancy rates overall for suburban malls. At the end of September 2016, suburban mall occupancy in Singapore stood at a little under 91%.

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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.