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How Resilient is Frasers Centrepoint Trust’s Portfolio?

Frasers Centrepoint Trust (SGX: J69U) was listed on the Singapore stock market in 2006. Its portfolio comprises of six suburban malls in Singapore. They are Causeway Point, Northpoint City North Wing (inclusive of Yishun 10 retail podium), Changi City Point, Bedok Point, Yew Tee Point and Anchorpoint. Frasers Centrepoint Trust also owns a 31.15% stake in Hektar Real Estate Investment Trust (H-REIT). H-REIT is a retail-focused REIT in Malaysia that has a portfolio of seven retail properties.

Frasers Centrepoint Trust has had a stellar record in the past, increasing its distribution per unit (DPU) by a compounded annual growth rate of 6.2%, from 6.55 cents in 2007 to 11.9 cents in 2017. It also has a low gearing ratio of just 29.7%, offering the REIT debt headroom for growth. From the financials, Frasers Centrepoint Trust looks like a formidable REIT that has rewarded shareholders in the past.

However, as an investor, I am keen to find out what drives the numbers and whether the REIT’s current portfolio has the ability to withstand any economic downturns. To do that, I will take a look at three qualitative aspects of the trust that will paint a clearer picture for investors.

How diversified is the portfolio?

Frasers Centrepoint Trust has a small and concentrated portfolio of malls located in Singapore. This is more by design, as the REIT is a specialist retail trust that has the experience and expertise in managing malls located in Singapore. However, the geographical and sector concentration of the REIT’s portfolio still pose some risks to investors. Any downturns in the retail scene in Singapore can negatively affect tenant sales and, consequently, the REIT’s ability to attract and retain tenants.

We have already seen e-commerce disrupt retail businesses in the US and China. Singapore is also currently having a mini-disruption as evident from the declining shopper traffic in some major shopping malls, which might have an impact on the REIT in the future.

Portfolio occupancy and rental reversion

For the quarter ended 31 December 2017, Frasers Centrepoint Trust reported a portfolio occupancy of 92.6%. Despite this being slightly higher than the previous quarter’s 92.0% occupancy rates, the REIT still has room for improvement. As a point of comparison, CapitaLand Mall Trust (SGX: C38U), another retail REIT in Singapore, had a committed occupancy rate of 98.5% in FY2017.

On the bright side, Frasers Centrepoint Trust did report positive rental reversions during the quarter. Overall, the trust had a rental reversion of +1.0%. Causeway Point and Changi City Point, which make up the majority of the net lettable area, saw rental reversions of +5.5% and +2.7% respectively. However, Bedok Point dampened the results as it saw negative rental reversion of 31.2% during the quarter.

Although Bedok Point makes up just a small portion of the total net lettable area, investors should continue to monitor its performance.

Shopper traffic and tenant sales

Excluding Northpoint City North Wing, which is under renovation, shopper traffic improved 1.4% from a year ago during the last quarter. It seems that the REIT has managed to maintain the attractiveness of its property even amidst the changing retail climate. This is perhaps due to the strategic locations of each of its malls.

Tenant sales also inched up by 0.2% from the previous year. Again, Causeway Point and Changi City Point were the main drivers of growth as both registered positive tenant sales growth.

The Foolish bottom line

Despite the challenging retail scene in Singapore, Frasers Centrepoint Trust has managed to improve on its performance from a year ago. This demonstrates the REIT’s durability to withstand macroeconomic headwinds.

However, there are a few aspects of Frasers Centrepoint Trust that investors should be aware of. First, Bedok Point has been the laggard performer for the trust in recent years. It will be interesting to see if the trust can improve the fortunes of this mall in the future.

Secondly, because of the relatively small concentrated portfolio of properties, the REIT is exposed to any downturns in the Singapore retail space. It is perhaps useful for investors to continue to monitor the broader market for events that may hurt the REIT’s profitability in the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of Frasers Centrepoint Trust and CapitaLand Mall Trust. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.