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3 Things Frasers Centrepoint Trust’s Management Wants You To Know About Its Business

Yesterday, Frasers Centrepoint Trust  (SGX: J69U) released its fourth quarter and full year earnings update for its fiscal year ended 30 September 2018 (FY2018). As a quick introduction for better context later, Frasers Centrepoint Trust is a real estate investment trust that owns six suburban retail malls in Singapore, including Causeway PointNorthpoint City North Wing and Changi City Point. It also holds a 31.15% stake in Hektar Real Estate Investment Trust (KLSE: 5121.KL), a retail-focused REIT listed in Malaysia.

The Manager of Frasers Centrepoint Trust had given a presentation on the REIT’s latest results. In the presentation deck, I saw three slides on the REIT’s business that I think investors should pay attention to.

The first slide shows a high-level summary of Fasers Centrepoint Trust’s income statement for the whole of FY2018:


Source: Frasers Centrepoint Trust FY2018 fourth quarter earnings presentation

We can see that the REIT had a good year. Its gross revenue, net property income, income available for distribution, and distribution per unit (DPU) all grew. Frasers Centrepoint Trust attributed its growth in gross revenue to Northpoint City North Wing’s higher average rental and occupancy following the completion of the asset enhancement initiatives (AEIs) on the mall in the first quarter of the fiscal year. The other two larger malls in the REIT’s portfolio, Causeway Point and Changi City Point, also achieved higher rental revenue for the year, with growth rates of 2.3% and 4.9%, respectively.

As of 30 September 2018, Frasers Centrepoint Trust’s gearing ratio stood at 28.6%, which is a healthy distance from the regulatory gearing ceiling of 45%. Its occupancy rate was 94.7%, up from 92.0% a year ago.

The next slide I want to look at shows the occupancy rates of the REIT’s portfolio for each property going back to the fourth quarter of FY2017:


Source: Frasers Centrepoint Trust FY2018 fourth quarter earnings presentation

The overall occupancy rates for the REIT have progressively improved over the last few quarters. Notably, the completion of the AEIs at Northpoint City North Wing resulted in a jump in the mall’s occupancy rate from 81.6% at end-September 2017 to 96.5% at end-September 2018. On the downside, Bedok Point and Anchorpoint saw their occupancy rates decline over the past few quarters; the good thing is that the two malls in question collectively accounted for just 7.6% of Frasers Centrepoint Trust’s total revenue in FY2018.

The last slide I want to talk about illustrates the rental reversion rate of Frasers Centrepoint Trust’s property portfolio:


Source: Frasers Centrepoint Trust FY2018 fourth quarter earnings presentation

The rental reversion rate is an important metric to study for a REIT as it gives us an idea of the market-demand for a REIT’s properties. As a property owner, we want to grow our rent over the long run; in the case of a REIT, positive rental reversion rates suggest growing rental income for the REIT.

Frasers Centrepoint Trust has so far managed to produce positive rental reversion rates in each fiscal year going back to FY2007. That’s great. But, investors might want to pay attention to the decline in the rental reversion rate seen in FY2017 and FY2018.

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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.