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7 Numbers to Better Understand Frasers Commercial Trust

Frasers Commercial Trust (SGX: ND8U), or FCOT, is a real estate investment trust (REIT) that invests in income-producing commercial properties. Its portfolio consists of six commercial buildings located in Singapore, Australia, and the United Kingdom, with an appraised value of S$2.1 billion as of 31 March 2019. FCOT is sponsored by Frasers Property Limited (SGX: TQ5).

For investors who are interested in understanding FCOT better, here are seven numbers you should pay attention to.

1. DPU of 2.4 Singapore cents: Distribution per unit (DPU) for Q2 2019 (the REIT has a 30 September year-end) stood at 2.4 Singapore cents. This was unchanged from a year ago and also unchanged from Q1 2019. The DPU for the half-year stood at 4.8 Singapore cents. At the closing price of S$1.64 for FCOT, the annualised forward dividend yield stands at 5.9%.

2. Gearing of 29.1%: Gearing for the REIT stood at 29.1% as of 31 March 2019 and is way below the statutory gearing limit of 45% as mandated by regulations for REITs. This allows the REIT more financial flexibility to borrow in order to pursue accretive acquisitions.

3. Borrowing rate of 2.98%: The average borrowing rate was 2.98% for the REIT and is considered attractive as the annualised net property income (NPI) yield for FCOT stood at 3.9%. This shows the REIT is generating a higher yield on its rentals than its borrowing rate.

4. 34% of properties: Of the portfolio’s properties, 34% are on freehold tenure, and the remaining 66% are on long leases of more than 75 years. This provides good stability for the unitholders and avoids any uncertainty regarding the land lease expiring anytime soon.

5. Committed occupancy rate of 81.5%: The committed occupancy rate for the overall portfolio stood at 81.5%. The Singapore portfolio’s occupancy was low at 67.5% due to the exit of Hewlett-Packard Enterprise Singapore Pte Ltd from Alexandra Technopark, but advanced negotiations are underway to lease space at the property. The Australian occupancy rate improved from 90.7% last quarter to 94% due to WeWork taking up approximately 12% of the net lettable area for Central Park.

6. WALE of 4.7 years: The committed weighted average lease expiry (WALE) for the portfolio was 4.7 years. This is fairly long as it offers unitholders assurance that most of the leases would not be disrupted at least for the next 1-2 years.

7. 2.6% rental escalation: The weighted average fixed step-up rate for the rental was 2.6% for FY 2019, and 47% of such leases incorporate rental escalation clauses. This ensures that rental rates can keep up with inflation rates.

Strong sponsor but facing short-term challenges

FCOT has a strong sponsor in Frasers Property Limited, but its Singapore portfolio has faced short-term challenges due to the departure of a major tenant (Hewlett Packard). This, plus the weakness in the Australian dollar, has negatively affected its portfolio and caused NPI to remain flat. Unitholders should have confidence that the REIT manager will be able to secure replacement tenants soon for Alexandra Technopark, and that the occupancy rate for the Singapore portfolio should rise again once this occurs.

Asset enhancement initiatives (AEI) are also ongoing at both Alexandra Technopark and China Square Central in Singapore in order to enhance the properties for organic growth in rental income. There are also plans for AEI for Australia’s Central Park that are estimated to cost S$23 million; work will begin in Q2 2019 and is scheduled to be finished in Q3 2020. These initiatives, once completed, should further enhance the net property income for the portfolio and benefit unitholders.

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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 Royston Yang doesn’t own shares in any companies mentioned.