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Frasers Centrepoint Trust’s Latest Earnings: Small DPU Dip Offset by Great Long-Term Prospects

Frasers Centrepoint Trust (SGX: J69U), or FCT, recently announced its Q3 2019 earnings (representing the period 1 April 2019 to 30 June 2019). There was a surprise dip in its distribution per unit (DPU) for the quarter, which was down 1.7% year on year to 3.00 Singapore cents. As a recap, FCT is a REIT that owns a portfolio of suburban malls. The portfolio comprises seven malls: Causeway Point, Northpoint City North Wing, Anchorpoint, Yew Tee Point, Bedok Point, Changi City Point, and a one-third interest in Waterway Point. The REIT also owns a 21.13% stake in PGIM Real Estate AsiaRetail Fund Limited (PGIM ARF) and a 31.15% stake in Hektar REIT (KLSE: 5121), which is listed on Bursa Malaysia.

However, I see this DPU decline as more of a tiny blip along a journey of ever-increasing DPU for the REIT. Investors should take the decline in perspective and look toward the long-term prospects of the REIT, which remain bright and promising. Here are some reasons I believe this is just a temporary phenomenon and that the REIT’s fundamentals are stronger than ever.

Slight decline in DPU

FCT reported a decline in DPU mainly because it retained around S$1.86 million of the income available for distribution, or around 5% of the total available distribution. If it had paid this out, DPU would have been 3.167 Singapore cents, or 3.7% higher year on year. The REIT is probably retaining some cash for its asset enhancement initiative (AEI), for higher property expenses, and to service slightly higher borrowing costs.

Investors should note that there was an enlarged unit base following the completion of the recent private placement of 155.18 million units in May at a price of S$2.382 per unit as well as a preferential offering of 28.82 million units at S$2.35 per unit. Based on FCT’s nine-month 2019 DPU of 9.157 Singapore cents, the REIT offers an annualised dividend yield of around 4.6%.

Strong operational metrics

The REIT’s operational metrics remained solid. Overall occupancy continued to rise from 96% in Q2 2019 to 96.8% in Q3 2019, mainly due to Bedok Point’s occupancy rate rising from 88.7% to 95%. In just one year, Bedok Point had raised its occupancy rate from a low of 78.1% to 95%, an impressive feat.

Rental reversion was reported at 3.1% for the entire portfolio for Q3 2019, while shopper traffic was up 6.1% year on year, and tenant sales were up 2.9% year on year on a per-square-foot basis.

Growth initiatives set in motion

Investors can look forward to better days ahead as FCT’s growth initiatives have already been set in motion with the acquisition of a one-third interest in Waterway Point on 16 May 2019, as well as the raising of FCT’s stake in PGIM ARF from 18.8% to 21.13%. These acquisitions should start contributing a full quarter’s worth of revenue and earnings to FCT from Q4 2019 onwards.

There was also ongoing AEI for Changi City Point, which temporarily affected occupancy rates there and reduced gross revenue by 2.2% year on year. However, the completion of this AEI will benefit the REIT as the construction of an underground pedestrian link will improve accessibility and enable the mall to attract higher footfall.

FCT’s 3-prong growth strategy

Source: FCT Q3 2019 Presentation Slides

FCT has a three-pronged growth strategy in place (above diagram) that focuses on building and sustaining long-term value for unitholders. With these initiatives in mind, and due to the REIT’s track record of growing DPU every single year since its IPO, I am confident that FCT offers great long-term prospects for investors.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned. The Motley Fool Singapore has recommended shares of Frasers Centrepoint Trust.