On 22 January 2024, Frasers Centrepoint Trust (“FCT”) have announced their first quarter business updates for FY2024. A key favorable point worth noting is that they have reduced their gearing this quarter and indicated that there are no refinancing risks for the rest of FY2024. This should provide investors with a peace of mind, considering that the interest rate environment is still currently uncertain for 2024.
Subsequent to the announcement, they have done a private placement at SGD2.18 per unit, raising SGD200 million in order to further acquire 24.5 percent stake in retail mall Nex. Take note that the private placement is done at a price below NAV, therefore there is some dilution in that area. However Nex have done well for FCT so far and investors should monitor in the next half year announcement if it has positively contributed to the REIT.
Website: General Announcement::Business Updates For The First Quarter Ended 31 December 2023
Background
FCT is a leading developer-sponsored REIT and one of the largest suburban retail mall owners in Singapore. FCT’s property portfolio comprises nine retail malls and an office building located in the suburban regions of Singapore, near homes and within minutes to transportation amenities.
FCT is among the top-ten largest Singapore REITs (“S-REITs”) by market capitalization. It is also an index constituent of several benchmark indices including the FTSE EPRA/NAREIT Global Real Estate Index Series (Global Developed Index), FTSE ST Real Estate Investment Trust Index, MSCI Singapore Small Cap Index and the SGX iEdge S-REIT Leaders Index.
Listed on the Main Board of the Singapore Exchange Securities Trading Limited since 5 July 2006, FCT is managed by Frasers Centrepoint Asset Management Ltd., a real estate management company and a wholly-owned subsidiary of Frasers Property Limited.
Key Metrics
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | No Info | -0.6% |
Based on the announcement on 22 January 2024, DPU was not included in the business update for the first quarter of 2024.
As at 30 September 2023, the metric is Neutral as DPU have remained relatively unchanged.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 99.9% | 99.7% |
Occupancy rate as at 31 December 2023 stands at 99.9%, which is extremely close to being 100% and fully utilised. This metric is Favorable as it is above my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 37.2% | 39.3% |
The gearing ratio has decreased to 37.2% as at 31 December 2023, notably due to a the significant decrease in borrowings outstanding. This to me is considered Favorable.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.3x | 3.4x |
The adjusted interest coverage for the trailing 12 months stands at 3.3 times, a decrease from 3.4 times in the previous quarter. This is Favorable in my opinion due to the high interest rate environment and is above my preference of 3.0 times. This metric is likely to improve as the Federal Reserve on 13 December 2023 held its key interest rate steady for the third straight time and set the table for multiple cuts to come in 2024 and beyond. The interest rates are therefore maintained at a range between 5.25% and 5.50%, which was increased on 26 July 2023, the highest level in 22 years.
Website: Fed holds rates steady, indicates three cuts coming in 2024
I have thus performed a sensitivity analysis using the information as at 31 December 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $1,931,000 |
| Debt Not Hedged (%) | 36.6% |
| Debt at Floating Rate Exposed | $706,746 |
| Distributable Income FY2023 | $207,135 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2023 Distribution |
|---|---|---|
| + 50 bps | -$3,534 | -1.7% |
| + 100 bps | -$7,067 | -3.4% |
| + 150 bps | -$10,601 | -5.1% |
| + 200 bps | -$14,135 | -6.8% |
| + 250 bps | -$17,669 | -8.5% |
| + 300 bps | -$21,202 | -10.2% |
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to increase by the basis points above, FCT may experience a fall in DPU accordingly.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 2.8 years | 2.3 years |
Weighted average term to maturity of their debt stands at 2.8 years as at 31 December 2023. This is Favorable as while they have sufficient time to refinance their debts as they fall due, especially as management has indicated that there are no refinancing risks for FY2024.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.96 | 0.91 |
Based on the announcement on 22 January 2024, net asset value (“NAV”) was not included in the business update for the first quarter of 2024.
The Price to Book (“P/B”) ratio currently stands at 0.96. This is computed using the closing share price of SGD2.22 on 26 January 2024 and the net asset value per share of SGD2.32 as at 30 September 2023. The P/B ratio is Favorable.
Other Metrics
Tenant profile
FCT has a well diversified tenant profile with the top 10 customers as at 31 December 2023 only account for about 20.8% of monthly portfolio gross rental income. Furthermore no single tenant accounts for more than 6.1% of FCT’s gross rental income. This is Favorable as FCT will not be too reliant on any single tenant for income.
Dividend Yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 5.47% | SGD 0.122 |
| 2022 | 5.51% | SGD 0.122 |
| 2021 | 5.38% | SGD 0.092 |
| 2020 | 4.13% | SGD 0.122 |
| 2019 | 6.29% | SGD 0.140 |
| 2018 | 5.41% | SGD 0.120 |
With a closing share price of SGD2.22 on 26 January 2024 and dividend payout of SGD0.122 for the full calendar year 2023, this translates to a dividend yield of 5.47%. Given the high interest rate environment, my expected yield for this quarter would be in the range between 5.25% and 6.25%. FCT is within the range. The dividend yield is thus Favorable.
Website: Reasonable Dividend Yield 2024Q1
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | No Info | Neutral |
| Occupancy | 99.9% | Favorable |
| Gearing Ratio | 37.2% | Favorable |
| Interest Coverage | 3.3x | Favorable |
| Debt Maturity Profile | 2.8 years | Favorable |
| Price to Book Ratio | 0.96 | Favorable |
| Overall | | Favorable |
Overall, the metrics indicate that is it favorable to invest in FCT this quarter. They have managed to reduce refinancing risks which should provide investors with a peace of mind for the next 9 months till 30 September 2024. With the recent price decrease due to the private placement, FCT continues to trade below its book value which means investors do not need to pay a significant premium.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: Frasers Centrepoint Trust (SGX: J69U): 2023 Full Year Result
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