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Frasers Centrepoint Trust captures the suburban wave

Emelia Tan
Emelia Tan11/23/2022 05:38 PM GMT+08  • 7 min read
Frasers Centrepoint Trust captures the suburban wave
FCT owns a portfolio of suburban malls including the Waterway Point, which helps lift its assets under management to some $6 billion / Photo: Albert Chua
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1. Describe FCT’s recent financial performance.

Listed in 2006, Frasers Centrepoint Trust (FCT) is one of the largest suburban retail mall owners in Singapore with assets under management (AUM) of approximately $6.2 billion. FCT’s current portfolio comprises nine retail malls and one office building located in the suburban regions of Singapore. FCT is managed by Frasers Centrepoint Asset Management, a wholly-owned subsidiary of Frasers Property which is the sponsor for FCT.

FCT closed its FY2022 ended September on a high note as its net property income (NPI) rose 4.9% y-o-y to $258.6 million and gross revenue grew 4.6% y-o-y to $356.9 million. This uplifted full-year distribution per unit (DPU) by 1.2% to 12.227 cents. FCT’s financial position remains healthy, with gearing at 33.0% and interest coverage ratio at over 5x. Net asset value also improved 1.3% to $2.33 per unit.

Broad-based improvements in operating performance were achieved with higher shopper traffic and tenants’ sales, portfolio occupancy levels and lower retail portfolio occupancy cost. The retail portfolio also achieved better average rental reversion of 1.5% (on incoming versus outgoing basis) compared with the previous year’s –0.6%. Leasing demand for mall space has also improved, with over 70 new-to-FCT brands onboarded in FY2022, including Don Don Donki, new-to-Singapore Café BomBom from South Korea and Tiong Bahru Bakery. These new tenants are a testament to the strong appeal and relevance our suburban malls continue to have for both retailers and shoppers.

2. Given the escalating manpower crunch and inflationary pressures, what is FCT doing to mitigate the impact on its business?

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Measures to cushion the impact of rising interest costs and utilities expenses include rent growth and room for higher ancillary income, asset enhancement initiatives (AEI) for value creation and higher contributions from the acquisition of the additional 10% stake in Waterway Point to be completed in FY2023. We are also monitoring other costs such as energy prices and contracted service fees and will adopt appropriate hedging strategies to manage the risks. We believe that our suburban retail properties have strong competitive advantages, given their proximity to residential homes and transportation nodes, and are well-positioned to benefit from trends such as hybrid work arrangements and the shift to omnichannel retailing.

3. FCT achieved 7.9% and 6.0% growth in gross revenue and NPI from 2HFY2021 to 2HFY2022. How does FCT plan to achieve higher levels of top-line and bottom-line growth?

According to CBRE, demand for suburban prime retail space has been firming up and we believe this will support positive rental reversions on lease renewals. The shift to working from home will also help to support demand for mall amenities during the weekdays. Through leveraging Frasers’ digital retail platforms, tenants could increase the sales productivity of their physical space with additional sales from online orders. This has helped to improve tenants’ sales and demand for retail space to support occupancy and rent growth. We are also focused on optimising FCT’s operations to drive efficiency and better NPI margin. Strategies include leveraging on technology to reduce reliance on manpower, sustainability-driven initiatives to reduce water and energy usage and optimising resource usage in collaboration with business partners and vendors.

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4. What is FCT’s acquisition strategy? How does the REIT ensure that it has a pipeline of potential acquisition assets?

We will explore and evaluate acquisitions of income-producing retail assets as and when these opportunities become available to us. Such opportunities could come from our sponsor or from third parties.

5. What is FCT doing to help tenants enhance sales?

To help our retail tenants, we often run regular advertising and marketing programmes in our malls and on our digital retail platforms to draw shopper’s attention and interests. Our tenant mix focuses on the provision of essential trades and services, including grocery, pharmacies, food and beverage, clinics, beauty and wellness, that serve the needs of the consumers in the catchment. We curate the tenant mix of each mall according to the profile of the shopper catchment (e.g. shopper demography, preference and needs) to adapt to the needs of our consumers. We also strive to introduce new retail concepts and brands to constantly refresh the appeal of the malls and to stay relevant to shoppers.

6. Covid-19 has engendered a structural shift in consumer behaviour. How do you think this will affect the performance of FCT’s portfolio going forward?

Covid-19 has transformed many aspects of the way we live, work and play, which include the rise of omnichannel retailing and shift to hybrid work arrangements. We believe our malls to be well-positioned to benefit from these trends with competitive advantages of being near homes and transportation nodes, focus on diversified essential trade and services, high quality amenities and a well-established shopper loyalty programme. The proximity of FCT’s malls to homes offers shoppers convenience for their orders through Frasers Property’s digital platforms to be fulfilled, while the rise in hybrid work arrangement will increase shopper traffic during weekdays. Furthermore, there is a growing demand for prime spaces in large and well-located suburban malls as retailers and F&B operators assess their store location strategy to manage rising costs, manpower constraints and changes in shopper behaviour.

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7. Sustainability is a growing priority for investors, how is FCT committed towards sustainability practices?

Sustainability is a core component of FCT’s business strategy. We work closely with our sponsor towards the group’s goal to net-zero carbon by 2050. Notable progress has been made in FY2022 with the introduction of technology risk management and environment risk management in FCT’s governance framework. FCT’s climate rated disclosures are also aligned with the recommendations of the Task Force on Climate-Related Disclosures (TCFD). For the second consecutive year, we achieved a five-star rating in the 2022 GRESB Real Estate assessment. FCT also received an “A” rating from the MSCI ESG Ratings in May, improving from our previous “BBB” rating, for advancing in FCT’s management of financially relevant ESG risks and opportunities.

8. Does FCT intend to diversify its portfolio into new countries or sub-segments?

We remain focused on our current strengths and core competence in the Singapore suburban retail sector. We review FCT’s business strategy regularly and believe that any proposition for diversification to new countries and/or sub-segments must be carefully evaluated to ensure the propositions are in line with our investment strategy, and to deliver long-term benefits in value creation and sustainable distribution returns for the trust and our unitholders.

9. Are there any opportunities for third-party acquisition in Singapore in the near term?

We believe that good quality and well-located retail assets are tightly held in Singapore, especially sizeable ones. Our team is always looking out for good quality, well-located and sizeable retail assets and will provide updates via SGX announcements if/when there is anything more definitive.

10. What is FCT’s value proposition to its unitholders and potential investors? What do you think investors may have overlooked about it?

We believe that FCT provides investors a compelling investment proposition of a stable, well-managed pure Singapore property REIT that has an established track record of steady performance. We have demonstrated strong growth, from our initial three-property portfolio with less than $1 billion in AUM in 2006, to the current 10-property portfolio of over $6 billion in AUM, through prudent and responsible management. As the second largest suburban retail mall owner in Singapore and part of the larger Frasers Property Group, FCT has the scale and platform to thrive in the endemic phase of Covid-19 and beyond.

We believe that we are well positioned to benefit from post-Covid lifestyle trends. The proximity of FCT’s malls to homes offers shoppers flexibility and convenience for their orders through Frasers Property’s digital platforms to be fulfilled. The rise in hybrid work arrangement means more people will work from homes and shop in nearby malls. FCT’s focus on diversified essential trade and services also continues to serve the needs of our shoppers and this underpins the resilience and relevance of our retail properties moving forward.

Emelia Tan is a research analyst with the Singapore Exchange

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