Dividend, or income, investors are generally seeking to invest in stable companies that can sustain dividend payments for a long period of time – think years or decades. In Singapore, real estate investment trusts (REITs) tend to fit that description.
But there are more than 40 REITs listed in Singapore. So which one should investors consider now? In this article, I’ll explore one REIT that may be attractive to income investors; Frasers Centrepoint Trust (SGX: J69U), or FCT.
As a quick introduction, FCT is a REIT with a property portfolio comprising of the following suburban retail properties in Singapore: Causeway Point, Northpoint City North Wing (including Yishun 10 Retail Podium), Anchorpoint, YewTee Point, Bedok Point, and Changi City Point. It also holds a 31.15% stake in Hektar Real Estate Investment Trust, a retail-focused REIT in Malaysia. Below are two compelling reasons why I think dividend investors should consider FCT as an addition to their portfolio.
Distribution per unit (DPU) track record
Investors make money from REIT investments in two ways – an increase in the share price and sustainable distribution per unit (DPU) payouts. In reality, the latter plays a more important role since a REIT distributes most of its profits to investors. Thus, it’s important that investors invest in a REIT that can sustain or, even better, grow its DPU over time. The good news is that FCT has done that over the last decade. Here are some numbers:
From FY2009 to FY2018, Frasers Centrepoint Trust has grown its DPU from 7.51 cents to 12.015 cents. In other words, its DPU was up by 60.0% during that period, giving investors a compounded annual growth rate (CAGR) of 5.4%. In other words, income investors not only received dividends but also enjoyed growth in the DPU over the decade.
Strong portfolio rental reversions
Source: FCT results presentation
The above is a slide showing FCT’s average rental reversion for the last 12 years. As property owners, we want to grow our rentals in the long run. Similarly, as an FCT investor, we would like to see its rental reversions improve over the long term.
So far, FCT has managed to maintain positive rental reversions in each of the last 12 years, including the latest half year. One positive here is that the rental reversion rate has improved strongly in H1 FY19 (+5.4% year-on-year).
Though past performance is no guarantee of future returns, FCT’s enviable track record of consistently positive rental reversions indicates that the REIT must be doing something right.
Overall, I think FCT is a candidate worthy of further research for income investors, mainly due to its strong DPU track record as well as its consistently positive rental reversions.
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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 recommended shares of Frasers Centrepoint Trust.