The Motley Fool

3 Things I Like About Frasers Commercial Trust

Frasers Commercial Trust (SGX: ND8U), as the name suggests, is a commercial real estate investment trust (REIT) with six properties in Singapore, Australia, and the UK. As of 31 March 2019, 54% of its assets, in terms of valuation, was in our country. Let’s explore three things investors might like about Frasers Commercial Trust.

Strong DPU growth

Frasers Commercial Trust has been growing its portfolio from just two properties valued at S$0.7 billion in March 2006 to six properties valued at S$2.1 billion at the end of September 2018. With that, distributable income as well as distribution per unit (DPU) have grown. DPU climbed from 5.60 Singapore cents in FY2010 (financial year ended 30 September 2010) to 9.60 Singapore cents in FY2018, translating to an annualised growth rate of around 7%.

Source: Frasers Commercial Trust investor presentation

In recent times, DPU has been stable at 2.40 Singapore cents per quarter. This is despite a drastic fall in occupancy at its Alexandra Technopark asset due to the exits of key tenants Hewlett-Packard Enterprise Singapore and Hewlett-Packard Singapore. As of 31 March 2019, committed occupancy was 59.2% at Alexandra Technopark.

Source: Frasers Commercial Trust investor presentation

Conservatively leveraged

The gearing ratio of a REIT reveals the amount of leverage it has taken on to grow its portfolio. In Singapore, REITs have a gearing limit of 45%.

As of 31 March 2019, Frasers Commercial Trust had a gearing ratio of just 29.1%, giving it the financial flexibility to make yield-accretive investments and seek future growth opportunities.

In fact, Frasers Commercial Trust is the third-most conservatively-leveraged REIT in Singapore at the moment, behind Fortune Real Estate Investment Trust (SGX: F25U) and Frasers Centrepoint Trust (SGX: J69U). Currently, Fortune REIT has a gearing ratio of 20.9%, while that of Frasers Centrepoint Trust is at 28.8%.

Future growth

One of the ways Frasers Commercial Trust plans to grow for the long term is through asset enhancement initiatives (AEIs). Such AEIs, in the REIT’s words, “enhance long-term performance and competitiveness of properties and elevate tenants’ and visitors’ experiences.”

On that note, the REIT has spruced up Alexandra Technopark by spending S$45 million in all. The property’s AEIs were fully completed in the second quarter of FY2019. The redeveloped Alexandra Technopark promises a more vibrant, stimulating, and engaging environment, and that seems to have attracted Google Asia Pacific Pte Ltd. The company will take up around 33% of Alexandra Technopark’s total net lettable area for five years beginning in the first quarter of 2020. The new lease will bump up the asset’s committed occupancy rate to a healthy 93.7%. The fact that Google has chosen Alexandra Technopark could attract other similar businesses and further boost the occupancy rate at the building.

Frasers Commercial Trust’s other property in Singapore, China Square Central, is also undergoing AEI for S$38 million. The revamp is expected to be completed in the second half of 2019. The adjacent Capri by Fraser hotel, which is owned by the REIT’s sponsor Frasers Property Ltd (SGX: TQ5), should also add vibrancy to China Square Central and benefit its tenants.

The higher occupancy at Alexandra Technopark coupled with the likely higher footfall at China Square Central once AEIs are completed should position Frasers Commercial Trust well for the years ahead.

Maximise dividends on your REITs with our brand-new Complete Guide To Buying The Best Singapore REITs. We reveal everything we think you need to know about finding the best REITs that hands you a fat dividend cheque ...even if you have no REITs experience at all! Get instant access to your 100% FREE, actionable, 42-page PDF guide here.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore recommends Frasers Centrepoint Trust. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.