Frasers Centrepoint Trust (SGX: J69U) is a REIT with a portfolio of suburban shopping malls in Singapore. These include Causeway Point, Northpoint City North Wing (including Yishun 10 Retail Podium), Anchorpoint, and others. Frasers Centrepoint Trust also holds a 31.15% stake in Hektar Real Estate Investment Trust (KLSE: 5121.KL), a Malaysia-listed REIT that invests in retail malls in Malaysia.
I see four good reasons for investors to like Frasers Centrepoint Trust now. For the first two reasons (the REIT has a strong financial performance and a positive outlook) you can head to this article.
Reason 3: Track record of positive rental reversions
The rental reversion rate is one of the important metrics that investors can use to gauge the level of demand for a REIT’s property. Generally, a property that is in high demand will be able to consistently deliver positive rental reversions over the long run. And so, it’s ideal for a REIT to be able to post positive, or at the very least flat, rental reversion rates.
Source: Frasers Centrepoint Trust earnings presentation
Frasers Centrepoint Trust has a solid track record in terms of posting positive rental reversion rates. The chart above plots the REIT’s rental reversions going back to its fiscal year ended 30 September 2007 (FY2007).
Reason 4: Low gearing
The gearing ratio (total debt over total assets) is another important metric that REIT investors should focus on. It indicates a REIT’s ability to withstand tough business environments, as well as its ability to grow over a long period of time.
In general, a low gearing ratio is preferred. There are two-fold benefits for a REIT if it has a low gearing ratio. Firstly, a low gearing reduces the risk of non-renewal of loans, especially during periods when the supply of credit is limited, such as during a financial crisis. Secondly, a low gearing gives a REIT the room to borrow and grow its assets without the need for issuing new units.
Another important thing to note about the gearing ratio for REITs in Singapore is that they are subjected to a gearing ceiling of 45% by the Monetary Authority of Singapore.
In the case of Frasers Centrepoint Trust, its gearing stood at 29.2% as of 31 March 2018, which is a safe distance from the regulatory limit.
A Foolish takeaway
There are good reasons for investors to like Frasers Centrepoint Trust right now. It has a strong track record, and is likely to continue delivering a good business performance in FY2018. Moreover, its strong balance sheet – seen in its low gearing – provides the resources to withstand tough times and/or grow its portfolio through acquisitions.
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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 Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation on Frasers Centrepoint Trust.