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Frasers Commercial Trust’s Latest DPU Stable; Room for Future Growth

Frasers Commercial Trust (SGX: ND8U) is a commercial real estate investment trust (REIT) with six properties in Singapore, Australia and the UK. The REIT announced its earnings for the third quarter ended 30 June 2019 (Q3 FY19) on Monday. Let’s look at some key highlights from the announcement.

Earnings highlights

The bad news was that gross revenue for the reporting quarter tumbled 7% year-on-year and 0.6% quarter-on-quarter to S$30.2 million. The fall in gross revenue on a year-on-year basis was on the back of a lower occupancy rate for Alexandra Technopark, divestment of 55 Market Street in August 2018 and effects of the average weaker Australian Dollar.

On top of gross revenue, net property income (NPI) fell as well. However, distribution per unit (DPU) was stable at 2.40 Singapore cents. Source: Frasers Commercial Trust’s Q3 FY19 earnings release

Frasers Commercial Trust’s gearing ratio remains low at 29.3%, as of 30 June 2019. Its leverage is one of the lowest in the Singapore REIT market, affording it the leeway to purchase accretive investments.

The REIT’s portfolio average committed occupancy rate grew to a healthy 94.1%, up 12.6 percentage point from 81.5% at the end of 2Q FY19. The growth was largely due to Google Asia Pacific’s lease at Alexandra Technopark; the committed occupancy at the Singapore asset rose to 93.7% from 59.2%.

Another positive bit of news that emerged is that the recent signing rents, of S$4.00 to S$4.60 per square foot (sq ft) per month at Alexandra Technopark, are higher than the average passing rent of slightly below S$4.00 per sq ft per month as of the end of 2018. With that, there’s room for DPU to grow in the future.

Looking ahead

Frasers Commercial Trust is undertaking some asset enhancement initiatives (AEIs) to keep its properties appealing to tenants. On that front, China Square Central in Singapore and Central Park in Australia are undergoing AEIs, and they should be completed in the second half of 2019 and the third quarter of 2020, respectively.

The Foolish takeaway

Overall, I feel that Frasers Commercial Trust had a decent quarter, even though gross revenue and NPI fell. The REIT managed to keep its DPU stable, and there is room for this metric to grow in future.

Frasers Commercial Trust also has wiggle room to gear up to make yield-accretive acquisitions when the opportunity arises.  I’m looking forward to the REIT’s earnings once Google starts contributing to gross revenue from the first quarter of 2020. At Frasers Commercial Trust’s current unit price of S$1.64, it has a price-to-book ratio of 1.1 and a distribution yield of 5.9%, which is not too demanding amid the high valuations of REITs in general right now.

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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 Sudhan P doesn’t own shares in any companies mentioned.