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Frasers Centrepoint Trust’s 2018 Annual Report: 3 Things I Learnt from the Letter to Unitholders

Frasers Centrepoint Trust (SGX: J69U) is a retail real estate investment trust (REIT) that owns six suburban malls in Singapore. These malls include Causeway Point, Northpoint City North Wing (including Yishun 10 retail podium), Changi City Point, Bedok Point, YewTee Point and Anchorpoint. The REIT also has a 31.15%-stake in Malaysia-listed Hektar Real Estate Investment Trust.

Last week, Frasers Centrepoint Trust released its annual report for the financial year ended 30 September 2018 (FY2018). I learnt a few things as I was reading through the letter to unitholders, one of the many sections of the annual report. Here are three things that stood out for me.

Overall growth in the business

In FY2018, gross revenue grew 6.5% to S$193.3 million while net property income rose 5.9% to S$137.2 million.

The higher gross revenue was driven by the three larger malls of Causeway Point, Northpoint City North Wing, and Changi City Point. Of the three, Northpoint City North Wing (excluding Yishun 10 retail podium) delivered the best growth with its revenue improving by 26.5%. The improvement was on the back of higher average rental, and improved occupancy following completion of asset enhancement initiative (AEI) works last year.

The remaining three smaller malls – YewTee Point, Bedok Point, and Anchorpoint – saw revenue declines of between 0.1% and 16% due to “lower occupancy and lower average gross rent compared to the same period last year”. Going forward, the REIT expects the “occupancy of these smaller properties and its financial performance to improve in the near term as we have secured new leases that will commence in the next few months”.

Operational highlights

As of 30 September 2018, the portfolio occupancy stood at 94.7%, higher than the 92% achieved in FY2017.

The better showing was mostly due to improvements at Northpoint City North Wing and Changi City Point. Occupancy at Northpoint City North Wing (excluding Yishun 10 retail podium) rose due to completion of the AEI last year while at Changi City Point, a tenant-mix repositioning strategy and commencement of the Downtown Line train service in October 2017 improved occupancy.

The total shopper traffic for the year was 100.1 million, an increase of 5.8% over FY2017. Causeway Point, Northpoint City (includes both North Wing and South Wing), and Changi City Point saw higher traffic of between 4.1% and 11.5% compared to the previous year.

Northpoint City registered the highest improvement in shopper traffic of 11.5%, due to North Wing’s completion of the AEI and the opening of the South Wing in December 2017.

Looking ahead

As for its growth outlook, Dr Cheong Choong Kong and Dr Chew Tuan Chiong, the chairman and chief executive of the REIT’s manager respectively, said:

“The Singapore Government has forecast Singapore’s economy to grow by 2.5 to 3.5% in 2018 and has cautioned about risk on its economy growth projection for 2019 due to the ramifications from trade tension between the United States and China. We remain watchful of the risks from these external events that could indirectly impact our business, including our sources of funding. We review our risk management policies regularly and take appropriate actions where necessary.”

One of the ways the REIT can grow in the years to come is through acquisitions of retail properties from Frasers Property Ltd (SGX: TQ5), Frasers Centrepoint Trust’s sponsor. Some of the retail assets owned by Frasers Property include Northpoint City South Wing (100%-owned), Waterway Point (33.3%-owned), Robertson Walk, The Centrepoint, and Valley Point.

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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. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.