7 Facts for REIT Investors from Frasers Centrepoint Trust’s Q3 FY2023 Earnings

July 27, 2023

Singapore-focused Heartland malls operator Frasers Centrepoint Trust (SGX: J69U), also known as FCT, released its business update for the third quarter ended 30 June 2023 (Q3 FY2023).

The retail REIT showed a strong performance despite ongoing challenges in the retail industry.

For S-REIT investors, here are the seven key highlights from FCT’s Q3 FY2023.

1. Improved occupancy on firm leasing demand

FCT’s retail portfolio committed occupancy increased by 1.6% year-on-year (yoy) to 98.7%, indicating strong demand for retail space.

This is a positive sign for FCT, as it shows that retailers are still interested in leasing space at their properties.

Aside from that, the overall portfolio also has a well-distributed lease maturity profile without any significant concentration risk.

2. Robust shopper traffic and retail portfolio tenants’ sales growth

FCT’s shopper traffic increased by 16% yoy, while tenants’ sales grew by 5% yoy.

This is a testament to the resilience of FCT’s retail portfolio, which has managed to attract shoppers and generate sales despite the ongoing challenges in the retail industry.

3. YTD tenants’ sales well above pre-COVID level

FCT’s tenants’ sales have remained strong, averaging around 16% above pre-COVID levels year-to-date (ytd).

This is a positive sign for FCT, as it shows that its retail portfolio has managed to recover from the impact of the pandemic and is performing well.

4. Higher gearing level but managing financing costs effectively

FCT’s aggregate leverage crept up slightly quarter-on-quarter (qoq) to 40.2% as of the end of June 2023, from 39.6% in the prior quarter, due to an additional drawdown to finance asset enhancement initiatives (AEIs) at Tampines 1.

However, FCT has managed to keep its all-in cost of borrowing at 3.7% ytd, despite higher interest rates.

Additionally, FCT has extended its average debt maturity to 2.53 years from 1.91 years and has completed refinancing for FY23.

These measures have helped FCT to manage its financing costs effectively.

5. Making progress towards carbon neutrality

FCT has taken steps towards carbon neutrality, collaborating with OCBC on its green loan offering with carbon credits.

This complements Tampines 1’s decarbonisation efforts in its progress towards carbon-neutral status encompassing all energy-related emissions.

6. AEI and tenant remixing to drive growth

AEIs and tenant remixing are key growth drivers in the near term for the REIT.

AEI works at Tampines 1 started from calendar Q2 2023 and are on schedule for completion by Q3 2024.

This will result in the deployment of an additional 8,000 sq ft of net lettable area (NLA) at the higher-yield floors in Basement 1 and Level 1.

FCT expects the AEI to deliver a return on investment (ROI) of 8.0% and has already secured pre-commitments of over 90% of the AEI space, mostly from new-to-mall tenants.

Aside from that, FCT is also refreshing the tenant mix at Century Square and Changi City Point.

7. Stable and attractive dividend yield of 5.5%

FCT also has a stable distribution per unit (DPU) of 12.0 Singapore cents.

This is supported by the expected higher rental reversions amid resilient demand for suburban retail space and improving tenant sales.

This is a positive sign for FCT’s unitholders, as it indicates a stable distribution despite the ongoing challenges in the retail industry.

Strong performance despite rising interest rate

In conclusion, FCT delivered a strong performance in its Q3 FY2023, with improved occupancy, robust shopper traffic and sales growth, effective management of financing costs, and progress towards carbon neutrality.

Additionally, FCT has also taken proactive measures to push for its AEI initiatives to drive growth in the near term.

With an attractive and stable dividend yield of 5.5%, this bodes well for long-term investors who are interested in buying quality S-REITs.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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