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Distributable Income Rises At Frasers Commercial Trust

Frasers Commercial Trust  (SGX: ND8U), or FCOT, owns six commercial properties in Singapore, Australia and the United Kingdom, valued at S$2.1 billion as at September 2018. The REIT has a market capitalisation of S$1.30 billion.

The latest report was for first-quarter earnings for the fiscal year ending on 30 September 2019 (FY19)

  1. Gross revenue for the reporting quarter decreased 11% year on year to S$31.5 million. Net property income dropped 15% to S$21.2 million. The reduced revenue and property income was due to lower occupancy at China Square Central & Alexandra Technopark, divestment of 55 Market Street, and a weaker Australian dollar, which was partially offset by one-off termination fees that the REIT received.
  2. In spite to the reduction in revenue and net property income, distributable income ticked up 11% to S$21.6 million over the same period. This was due to contributions from its UK property, distribution from capital returns received for hotel development rights at China Square Central and payment of management fees in units. However, distribution per unit (DPU) remained stable at 2.4 cents.
  3. As of 31 December 2018, FCOT’s gearing stood at 28.4% leaving ample headroom before it would reach the regulatory 45% debt limit. The weighted average annualised interest rate stood at 2.97%, with an average debt duration of 2.6 years. Around 90% of the REIT’s debts are fixed-rate loans and no major refinancing is needed until FY2020. FCOT’s interest coverage is a health 4.9 times.
  4. The REIT’s portfolio had an occupancy rate of 80.7% at the end of the quarter, with a weighted average lease expiry (WALE) by gross rental income of 4.3 years. FCOT’s has approximately 18.1% of leases up for renewal in the current fiscal year. In addition, 47% of FY19 leases by gross rental income have built-in rent step ups with an average weighted step-up of 2.6%.
  5. FCOT’s net asset value (NAV) declined by 1.9% from the previous quarter, coming in at S$1.56.

The Road Ahead

The REIT manager highlighted three areas that it is focussing on to strengthen the portfolio for long-term growth. This can be seen in the image below.

Source: FCOT first-quarter earnings presentation

It intends to strengthen the portfolio through accretive acquisitions. One such acquisition was done in FY 18 with the UK property to allow for portfolio diversification and long-term growth.

It is focussing on capital recycling. This can be seen from its divestment of 55 Market Street in the middle of 2018. Lastly, it is looking at asset enhancement initiatives such as the ongoing refurbishment of Alexandra Technopark, which is nearing completion and at China Square Central which is currently underway.

The REIT manager also announced that co-working space operator JustCo has committed to leasing the entire second floor of the China Square Central after the asset-enhancement initiative.

Units of FCOT closed at S$1.45 on Friday, sporting a price-to-book ratio of around 0.93 and an annualised yield of 6.62%.

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The Motley Fool Singapore writer, Esjay, contributed towards this article. Esjay does not own shares in FCOT.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.