Is Frasers Centrepoint Trust (SGX: J69U) a Buy in My Books?
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Is Frasers Centrepoint Trust (SGX: J69U) a Buy in My Books?

Sudhan P
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Right now, Frasers Centrepoint Trust‘s (SGX: J69U) share price (technically known as unit price for REITs) is $3.03. 

At that unit price, Frasers Centrepoint REIT is valued at a price-to-book (PB) ratio of 1.4 and a distribution yield of 4%.

Would I buy Frasers Centrepoint REIT at its current price and valuation?

Let’s explore using my 10-step guide to pick the best Singapore REITs.

How to pick the best REITs

As a summary, here are the 10 steps I use to pick the best Singapore REITs:

  1. Growth in Gross Revenue and Net Property Income
  2. Growth in Distribution Per Unit
  3. Property Yield of Between 5% and 9%
  4. Gearing Ratio of Below 40%
  5. Interest Coverage Ratio of Above 5x
  6. Healthy Portfolio Occupancy Rate
  7. Positive Rental Reversions
  8. Presence of Growth Prospects
  9. Acceptable Price-to-Book Ratio
  10. Distribution Yield of Above 5%

Business Background

Frasers Centrepoint Trust is a retail REIT that has seven retail properties in Singapore.

The properties are Causeway Point, Northpoint City North Wing (includes Yishun 10 retail podium), Changi City Point, Bedok Point, YewTee Point, Waterway Point (40% interest) and Anchorpoint.

Frasers Centrepoint Trust also has a 25% stake in PGIM Real Estate Asia Retail Fund Limited and a 31% stake in Malaysia-listed retail REIT, Hektar Real Estate Investment Trust (KLSE: 5121).

PGIM Real Estate Asia Retail Fund Limited owns and manages five retail malls — Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1 — and an office property (Central Plaza) in Singapore. It owns two retail malls in Malaysia too. 

Frasers Centrepoint Trust properties
Source: Frasers Centrepoint earnings presentation

I like how Frasers Centrepoint Trust’s malls are strategically located near MRT stations of major housing estates, giving them strong shopper catchment. 

Frasers Centrepoint Trust’s sponsor is Frasers Property Limited (SGX: TQ5). 

1. Gross Revenue and Net Property Income (NPI) Check

Check for: Increasing gross revenue and NPI

Frasers Centrepoint Trust has a financial year that ends on 30 September each year. The REIT announced its 2019 earnings results on 23 October 2019. 

The following table shows how Frasers Centrepoint Trust’s gross revenue and NPI have been over the last five years:

 FY2015FY2016FY2017FY2018FY2019Compound Annual Growth Rate (CAGR)
Gross revenue
(S$' million)
189.2183.8181.6193.3196.40.9%
Net property income
(S$' million)
131.0129.9129.6137.2139.31.6%

There was a slight fall in gross revenue and NPI from FY2015 to FY2017, and this was mainly due to asset enhancement initiatives (AEIs) at Northpoint City North Wing.

However, the figures in FY2018 and FY2019 have topped those of FY2015, and that’s a positive. 

Verdict: Pass

2. Distribution Per Unit (DPU) Check

Check for: Increasing DPU

Frasers Centrepoint Trust’s DPU has grown steadily over the past five years. 

 FY2015FY2016FY2017FY2018FY2019CAGR
Distribution per unit (Singapore cents)
11.60811.76411.90012.01512.0701.0%

Looking further back, Frasers Centrepoint Trust has a strong track record achieving 13 consecutive years of DPU growth since its IPO in 2006.

Frasers Centrepoint Trust properties DPU growth
Source: Frasers Centrepoint investor presentation

Therefore, Frasers Centrepoint Trust passes this criterion resoundingly.

Verdict: Pass

3. Property Yield Check 

Check for: Property yield of between 5% and 9%

Next up is a look at Frasers Centrepoint Trust’s property yield. 

For FY2019, Frasers Centrepoint Trust had an NPI of S$139.3 million while its valuation of investment properties was S$2.85 billion.

The figures give a property yield of 4.9%, which just fails to meet my criterion. 

Verdict: Fail

4. Gearing Ratio Check

Check for: Gearing ratio below 40%

As of 31 December 2019, Frasers Centrepoint Trust had a gearing ratio of 33.2%, which is acceptable.

Frasers Centrepoint Trust’s gearing ratio is also one of the lowest in the Singapore REIT market. 

Frasers Centrepoint Trust gearing ratio 31 Dec 2019
Source: Frasers Centrepoint earnings presentation

Verdict: Pass

5. Interest Coverage Ratio Check

Check for: Interest coverage ratio above 5 times

Frasers Centrepoint Trust’s interest coverage ratio, for FY2019, stood at 5.7x.

The interest coverage ratio increased to 5.9x in Frasers Centrepoint Trust’s latest quarter, which is excellent.

Frasers Centrepoint Trust interest cover ratio 31 Dec 2019
Source: Frasers Centrepoint earnings presentation

Verdict: Pass

6. Portfolio Occupancy Rate Check

Check for: Healthy portfolio occupancy rate

Frasers Centrepoint Trust enjoyed a healthy portfolio occupancy rate in FY2019.

As of 31 December 2019, the committed occupancy for the portfolio was 97.3%, which is high.

Frasers Centrepoint Trust occupancy ratio 31 Dec 2019
Source: Frasers Centrepoint earnings presentation

It can also be seen from the chart above that Frasers Centrepoint Trust’s occupancy rate has improved from 96.2% at the end of 2018.

Verdict: Pass

7. Rental Reversion Check

Check for: Positive rental reversions

For FY2019, Frasers Centrepoint Trust’s average rental reversion was 4.8%. 

In the first quarter of FY2020, the REIT also had a positive rental reversion of 5%, and this is despite the sluggish retail market. 

Frasers Centrepoint Trust rental reversion
Source: Frasers Centrepoint earnings presentation

It’s also worth noting that nearly all of Frasers Centrepoint Trust’s leases include step-up clauses that provide a yearly rental increase of between 1% and 2% during the lease term.

Verdict: Pass

8. Growth Prospects Check

Overall in Singapore, there is a growing population, sustained low unemployment rate, and increasing monthly household income. These should contribute to increased shopper traffic and tenant sales. 

Frasers Centrepoint Trust’s largest mall, Causeway Point, is located at a significant interchange for the Thomson East Coast Line (TEC). With a further six TEC stations opening this year, there could be a marked increase in footfall at Causeway Point. 

Waterway Point, the REIT’s newest addition to its portfolio, is located in Punggol, one of the fastest-growing residential precincts in Singapore.

There are also opportunities for the acquisition of Northpoint City South Wing from its sponsor and other third-party assets. 

Frasers Centrepoint Trust can also undertake AEIs on its existing malls to change their configuration and layout to improve their income-producing capabilities. 

Frasers Centrepoint Trust growth prospects
Source: Frasers Centrepoint earnings presentation

Verdict: Pass

9. Price-to-Book Ratio Check

Check for: Acceptable price-to-book ratio 

At Frasers Centrepoint Trust’s current unit price of S$3.03, it has a PB ratio of 1.4x.

Over the past five years, its average PB ratio stood at around 1.1x. 

Frasers Centrepoint Trust is clearly expensive at the moment with a PB ratio that is higher than average. 

Verdict: Fail

10. Distribution Yield Check

Check for: Distribution yield to be above 5% 

At Frasers Centrepoint Trust’s current unit price of S$3.03, its distribution yield is at 4%, which is clearly below my threshold of 5%. 

Verdict: Fail

The Final Verdict

Frasers Centrepoint Trust has a final score of 7/10.

The REIT is undoubtedly one of the stronger REITs out there in the Singapore REIT market. However, I’m not putting money into the REIT right now due to its high valuation. 

Therefore, I’d place Frasers Centrepoint REIT on my watchlist. 

What Are Your Thoughts on Frasers Centrepoint Trust?

Why not check our Seedly Community and drop your question or analysis on Frasers Centrepoint Trust there.

Stock Discussion on Frasers Centrepoint Trust

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. 

REITs Tool

About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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