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.
As a summary, here are the 10 steps I use to pick the best Singapore REITs:
- Growth in Gross Revenue and Net Property Income
- Growth in Distribution Per Unit
- Property Yield of Between 5% and 9%
- Gearing Ratio of Below 40%
- Interest Coverage Ratio of Above 5x
- Healthy Portfolio Occupancy Rate
- Positive Rental Reversions
- Presence of Growth Prospects
- Acceptable Price-to-Book Ratio
- 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.
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:
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | Compound Annual Growth Rate (CAGR) | |
|---|---|---|---|---|---|---|
| Gross revenue (S$' million) | 189.2 | 183.8 | 181.6 | 193.3 | 196.4 | 0.9% |
| Net property income (S$' million) | 131.0 | 129.9 | 129.6 | 137.2 | 139.3 | 1.6% |
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.
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | CAGR | |
|---|---|---|---|---|---|---|
| Distribution per unit (Singapore cents) | 11.608 | 11.764 | 11.900 | 12.015 | 12.070 | 1.0% |
Looking further back, Frasers Centrepoint Trust has a strong track record achieving 13 consecutive years of DPU growth since its IPO in 2006.
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.
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.
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.
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.
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.
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.
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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.
