Here’s why Frasers Centrepoint Trust has been more resilient than other REITs

What happened?

Frasers Centrepoint Trust, or FCT, is one of the best-performing Singapore REITs so far this year.

As of 31 October 2023, its share price has been stable year-to-date at S$2.07.

This would compare to a 15% decline in the iEdge S-REIT index over the same period. 

Frasers Centrepoint Trust is the largest suburban retail provider in Singapore with a portfolio of malls such as Causeway Point and Nex. Frasers Centrepoint Trust  has a 10.5% share of suburban shopping centre floor space in Singapore

This percentage surpasses CapitaLand Integrated Commercial Trust (9.6%) and Mapletree Pan Asia Commercial Trust (5.5%) and is also higher than the Housing Development Board’s 7.2%.

Let us find out what is driving the strong share price performance of Frasers Centrepoint Trust . 

What investors may like about Frasers Centrepoint Trust (FCT)

#1 - Frasers Centrepoint Trust’s distributions have been steady

FCT’s rental income has remained resilient even during economic downturns as 52.5% of its trade mix focuses on essential services.

As a result, FCT’s distribution per unit (DPU) has risen in every fiscal year except for fiscal 2020 (FY2020).

Investors should note that FY2020’s results were impacted by mall closures resulting from safe distancing measures imposed during the pandemic.

FCT had to dole out significant amounts of rental rebates to tenants who were affected by said closures, which negatively impacted its DPU.

Despite the dip, FY2022 saw DPU roaring back  to 12.227 Singapore cents and even surpassing the pre-COVID DPU level of 12.07 Singapore cents.

For FY2023, FCT’s DPU fell just marginally to 12.15 Singapore cents even as rising interest rates pushed up finance costs for the REIT and ate into distributable income.

The REIT’s committed occupancy stood at 99.7% as of 30 September 2023 with tenant sales enjoying a 7.3% increase for FY2023 compared to FY2022.

#2 - Disposal of Changi City Point will lower net gearing

In August, FCT announced that it will divest its stake in Changi City Point, a mall at Changi Business Park, for S$338 million.

With this disposal, the suburban retail REIT’s portfolio will comprise nine retail malls and one office building.

The divestment is part of the manager’s strategic portfolio review to create value for FCT unitholders and was done at a 4% premium to the valuation of S$325 million as of 31 July 2023.

The REIT will book a net capital gain of S$10.9 million after accounting for fees and expenses.

The proceeds will be used to pay down loans with higher interest rates.

Together with a divestment in its stake in Hektar REIT, FCT’s aggregate leverage is projected to fall from 39.3% as at 30 September 2023 to 36.1% post-divestment.

#3 - Disposal builds upon strong capital recycling track record of FCT

The disposal of Changi City Point is the fourth property sold by the REIT.

FCT’s manager has engaged in capital recycling activities since September 2020 when it announced the disposal of its first property – Bedok Point.

Bedok Point was a retail mall with five levels of shopping and was sold to FCT’s sponsor, Frasers Property Limited (FPL), for S$108 million.

Back then, the divested mall generated a low net property income (NPI) yield of just 2.5%.

Just three months later, the suburban retail REIT announced the divestment of Anchorpoint Mall for S$110 million.

This was followed up by the disposal of Yew Tee Point for S$220 million in March 2021.

Aside from divestments, the REIT manager was also busy with acquisitions to refresh and boost FCT’s portfolio.

Along with the announcement of the divestment of Bedok Point, the manager also announced the acquisition of the remaining 63.1% interest in PGIM Real Estate AsiaRetail Fund Limited (ARF).

ARF, which held a portfolio of five retail malls such as White Sands, Hougang Mall and Century Square, was first acquired by FCT back in February 2019 when the latter purchased a 17.13% stake in the former.

FCT then topped up its stake to 36.9% in June 2020 and then converted ARF into a wholly-owned subsidiary in September of the same year.

ARF was not the only acquisition announced by the REIT.

FCT also acquired a one-third interest in Punggol’s Waterway Point Mall in May 2019 and subsequently topped up its interest to 50% by September 2022.

Elsewhere, the REIT manager partnered with sponsor Frasers Property Limited (FPL) to jointly acquire a 50% stake in Serangoon’s NEX Mall for S$652.5 million, with FCT eventually owning a 25.5% interest.

Meanwhile, the REIT manager also announced the commencement of asset enhancement works at Tampines 1 Mall.

These works are scheduled to be completed by the third quarter of next year and will offer a refreshed retail experience with new-to-mall offerings such as Love, Bonito, Sushiro and Greendot.

What would Beansprout do?

FCT is anchored by a reputable sponsor in FPL and has demonstrated a good track record of asset recycling to optimise its portfolio.

The transactions above paint the picture of an active REIT manager who is constantly optimising the portfolio to create maximum value for unitholders.

FCT has proven its ability to bounce back strongly after the pandemic and seems to be positioning itself for further growth with its recent divestment.

We will be watching out for further acquisitions or asset enhancement works to be carried out to increase FCT’s portfolio size and bolster its future DPU.

The retail REIT’s price to book ratio, at 0.89 times, is inline with its average of 0.9 times.

For now, analysts remain positive on the prospects of FCT, with a consensus target price of S$2.33 as of 31 October 2023. 

This represents a potential upside of 13% compared to its price of S$2.07 as of 31 October 2023. 

FCT is expected to offer an forward dividend yield of 5.8%, slightly below the forward dividend yield of 6.0% offered by CapitaLand Integrated Commercial Trust and 8.4% offered by Mapletree Pan Asia Commercial Trust.

Check out our REIT comparison tool to compare retail REITs and find the best REIT for your portfolio.

Related links:

• Frasers Centrepoint Trust share price and analysis
• Frasers Centrepoint Trust dividend