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Frasers Commercial Trust: 5 Things to Note From its Latest Earnings

Frasers Commercial Trust (FCOT) (SGX: ND8U) reported that distribution per unit (DPU) for the REIT remained stable in the second quarter on Tuesday. FCOT, as its name suggests, owns six commercial properties across Singapore, Australia and the United Kingdom valued at S$2.1 billion as at 31 March 2019. The REIT has a market capitalisation of S$1.34 billion.

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

Let’s take a quick look at the results and five key things to note.

  1. Gross revenue for the reporting quarter decreased by 3.6% year-on-year to S$30.4 million, while net property income followed suit by falling 4.9% to S$20.1 million. The lower revenue and property income were on the back of lower occupancy at Alexandra Technopark, divestment of 55 Market Street, and a weaker Australian Dollar.
  2. Contrary to the reduction in revenue and net property income, distributable income increased slightly by 0.6% to S$21.7 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, DPU remained stable at 2.4 cents.
  3. Next, let’s have a look at FCOT’s debt profile. As of 31 March 2019, FCOT’s gearing stood at 29.1% leaving it ample debt headroom before reaching the 45% regulatory limit. The weighted average annualised interest rate stood at 2.98% with an average debt duration of 2.6 years. Approximately 87% of the REIT’s debt are on fixed-rate loans and no major refinancing is needed until FY2020. FCOT’s interest coverage is a healthy 4.7 times.
  4. The REIT’s portfolio had an occupancy rate of 78.8% at the end of the quarter with a weighted average lease expiry (WALE) by gross rental income of 4.3 years. FCOT has approximately 10% of leases up for renewal by gross rental income for the rest of the fiscal year. In addition, 47% of FY19 leases by gross rental income have built-in rental step-ups with an average weighted step-up of 2.6%.
  5. FCOT’s net asset value (NAV) came in at S$1.57 down slightly from S$1.61 as at 30 September 2018.

Portfolio Updates

The REIT manager gave an update on the asset enhancement initiatives it has taken:

“At Alexandra Technopark, the S$45 million asset enhancement initiative (“ATP AEI”) to rejuvenate and transform the property into a vibrant, engaging and stimulating business campus was fully completed during the quarter. A new 13,300-square feet amenity hub, which provides seamless connectivity to the two business space blocks and houses a wide array of food and beverage, social and other amenities, has greatly improved tenants’ and visitors’ experience at the property.”

“At China Square Central, the on-going S$38 million asset enhancement initiative to rejuvenate and reposition the retail podium at 18 Cross Street (“CSC Retail AEI”) is expected to complete in the second half of 2019. The CSC Retail AEI aims to create an exciting destination focusing on food and beverage, wellness and services. At the same time, the net lettable area of the retail podium is expected to increase from 64,000 sf to around 80,000 sf9, which will add to its income-generating potential. Close to half of the space in the retail podium has been pre-committed to-date. The retail podium is also expected to benefit from increased visitor numbers to China Square Central that can be envisaged with the expected opening of the new 304- room Capri by Fraser, China Square hotel in 2Q 2019.”

“At Central Park, there are plans for the office lobby and forecourt areas to undergo an asset enhancement initiative (“CP AEI”) to consolidate the property’s position as one of Perth’s premium grade business locations and enhance the experience for both tenants and visitors. Estimated to cost S$23 million (FCOT’s 50% share: S$11.5 million), the CP AEI is currently expected to commence in Q2 2019 and complete in Q3 2020. The key aims of the CP AEI are to transform the lobby and forecourt areas into a more contemporary, activated and community-friendly environment through the introduction of new amenities and flexible spaces and enhanced connection with the park adjacent to the property, among other things.”

Units of FCOT closed at S$1.49 on Tuesday, sporting a price-to-book ratio of around 0.95 and an annualised yield of 6.4%.

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Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not own shares in FCOT.