Frasers Centrepoint Trust (“FCT”) (SGX: J69U) recently released its fiscal year 2020 financial report ended 30 September 2020 (“FY 2020”).
The latest earning report provides insight on how the retail real estate investment trust (REIT) has performed during this tumultuous year, and its outlook for the next year.
The REIT offers investors the opportunity to own a stake in Singapore’s unique suburban mall scene.
FCT’s portfolio consists mainly of retail spaces in residential areas with connectivity to the country’s public transportation system.
Examples include Anchorpoint, Changi City Point, Causeway Point, and YewTee Point.
Year to date, its share price has declined by 18.41% from S$2.77 to S$2.26.
In this article, we will outline the five main takeaways from FCT’s FY 2020 financial report.
Weaker top and bottom line
For FY 2020, FCT reported a 16.3% drop in gross revenue to S$164.38 million, down from S$196.39 million a year ago.
The company’s net property income (NPI) has also taken a beating.
Compared to FY 2019, NPI has fallen by 20.4% year on year from S$139.3 million to S110.9 million.
While these figures are concerning, it is important to understand the reasons behind this fall.
One of the major reasons for the drop is the provision of two months of rental waivers mandated under the Singapore government’s rental relief framework.
Exclusion of this one-off rental support would vastly improve FCT’s gross revenue and NPI numbers.
Gross revenue would have decreased by 2.4% year on year, while NPI would have declined by just 0.7% year on year.
These updated figures show that the underlying business remains stable and resilient even during these uncertain times.
FCT also reported an increase in its gearing ratio.
Its leverage ratio stood at 35.9% for FY 2020. A year ago, this ratio was 32.9%.
Total borrowings were S$1.3 billion in the current fiscal year, up from S$1.0 billion in the previous fiscal year
The higher leverage ratio means there is less headroom to take on more debt.
Having said that, the average cost of borrowing has decreased from 2.6% in 2019 to 2.4% this year.
At a comfortable interest coverage ratio of 4.95 times, the REIT has the capacity to take on additional debt to finance new opportunities.
Slight increase in occupancy rate
FCT reported an occupancy rate of 94.9% for FY 2020 across its portfolio, a modest increase from 94.6% in the previous quarter.
However, this was a slight deterioration from the previous year’s occupancy rate of 96.5%.
The REIT’s high occupancy rate can be attributed to its portfolio’s focus on essential trade categories such as food and beverage (F&B), health and beauty, and supermarkets.
According to the report, these trade categories accounted for 38.2%, 12.0%, and 5.3% of FCT’s total gross rental income (GRI) respectively.
FCT’s suburban mall base also has access to a population of approximately 2.2 million Singaporeans within a three-kilometre radius.
The essential services provided by and close proximity of the suburban malls in FCT’s portfolio creates a natural reliance for Singaporean households.
Positive rental reversion
The latest financial report also revealed positive rental reversions of 4.2% for FY 2020.
Investors will be watching to see whether FCT will be able to maintain this strong performance in rental reversion in the fiscal year 2021, with 32.6% of its total portfolio by GRI up for renewal.
There is no question that retail REITs have been badly affected by the pandemic.
While that may be true, FCT appears to be the exception.
With safe distancing measures in place, FCT’s portfolio has recorded declines in shopper traffic since March.
During the months of July to September, shopper traffic was down by an average of 38.23% as compared to the previous year.
On the other hand, total tenant sales were only 3.6% lower year on year.
Based on the retail sales index for September 2020 by the Department of Statistics Singapore, retail sales (excluding motor vehicles) were down by 12.7% for the month.
It is clear from these numbers that FCT’s portfolio is a cut above its competitors in the retail REIT sector.
This difference can be credited to FCT’s focus on suburban malls.
Recognising this strength, FCT’s management recently announced the proposed acquisition of the remaining 63.1% stake of AsiaRetail Fund (ARF).
ARF owns five malls in Singapore.
They are Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines One.
This handful of shopping complexes fit the description of FCT’s suburban mall concept, solidifying its lead over other retail REITs.
While great uncertainty persists in the world today, FCT has found a stronghold in neighbourhood malls, which helps to keep its rental income steady through the crisis.
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Disclosure: Zachary Lim does not own shares in any of the companies mentioned.