Frasers Centrepoint Trust 2H FY2024 Full-Year Update (Oct 2023 To Sep 2024)

On 25 October 2024, Frasers Centrepoint Trust (FCT) released the results for 2H2024 and FY2024 that ended on 30 September 2024.

The presentation slides contain a lot of insightful information, and they can be found on FCT’s official website.

The Usual Healthy Metrics From FCT

FCT reported strong portfolio performance that reflected healthy leasing demand, with retail portfolio occupancy at 99.7% and an average rental reversion at +7.7%.

Increased shopper traffic and sales for FY2024 saw higher numbers, with sales levels 20% above pre-COVID levels.

Stable But Elevated Cost Of Debt (4.1%)

Some aspects of REITs are easy to understand — shareholders want income to go up and expenses to go down.

The bulk of a REIT’s expenses are attributed to debt costs, which have spiked in recent years due to rising interest rates.

FCT management has stated that the cost of debt is expected to remain stable but elevated at around 4.1% for FY2025.

Despite the pivot of the fed rate during the September 2024 FOMC meeting, the cost of debt is a lagging indicator.

When maturing debts are refinanced during the subsequent financial years at the current rates, they will impact the average cost of debt. It is likely that we will only see the cost of debt go down in a year or two.

Meanwhile, the Fed is expected to lower rates to the 3.5% to 3.75% range in 2025 from the current 4.75% to 5% range.

Considering that FCT’s cost of debt had soared from 2.16% in 2021 to 4.1% in 2024, even a modest decline back to the 3% range for FCT’s cost of debt would be an enormous boost for FCT.

With all factors staying constant, when expenses (such as the cost of debt) go down, DPU goes up.

Significant Activities For FCT In A Busy Year

While Changi City Point was divested (October 2023), FCT now has a total 50% stake in NEX (March 2024), diversifying and strengthening the portfolio.

Additionally, the asset enhancement initiative (AEI) of Tampines 1 was completed in August 2024.

The next six months should be a period of stability for FCT, during which all properties can make full contributions to the portfolio with no divestments and acquisitions. The 1H FY2025 update in May 2025 would make for an interesting read before the upcoming Hougang Mall AEI takes place in the second quarter.

DPU, Net Property Income and Revenue

The FCT portfolio has seen positive growth if we exclude the effects of the divestment of Changi City Point and AEI for Tampines 1.

Distributions from investments have grown over the last two years despite the divestment of Changi City (Carpark Operations) and Hektar REIT due to the significant stake that FCT has acquired in NEX and Waterway Point.

• GRPL (Gold Ridge Private Limited) owns NEX
• SST (Sapphire Star Trust) owns Waterway Point

Below are the numbers for FY2022, FY2023 and FY2024.

Asset Enhancement Initiatives – Tampines 1 & Hougang Mall

AEI for Tampines 1 was completed in August 2024, ahead of the year-end festive season, and is right on time for plenty of shopping and feasting as we approach the end of 2024.

For reference, the Tampines 1 AEI was conducted in phases while the mall continued to operate.

The Hougang Mall AEI planned for next year will undergo the same process. Works should start in 2Q 2025 and be completed by 3Q 2026.

For a rough idea of the impact on the numbers, Hougang Mall is currently the second smallest mall and third smallest property in FCT’s portfolio (about 2/3 the size of Tampines 1) and, as such, is expected to have a less significant impact on FCT’s performance. Since work will only start in 2Q 2025, the impact will only be felt in the 2H FY2025 full-year update.

In addition, for FY2025, FCT will start benefiting from full-year contributions from both NEX (50% ownership) and Tampines 1, which will help to negate the DPU impact brought on by the Hougang Mall AEI.

In case you are confused by the chart above, remember that FCT owns 50% of GRPL (which owns NEX) and 50% of SST (which owns Waterway Point). The charts above are on a 100% basis, so we can half those values.

This would also mean that Causeway Point is actually the largest contributor, whereas (50% of) NEX is the second largest.

Potential Northpoint South Wing Acquisition?

In my opinion, the next most likely acquisition target could be Northpoint South Wing, perhaps when the cost of debt is lower.

Needless to say, there is obvious synergy with Northpoint North Wing which is already owned by FCT.

Currently, Northpoint South Wing is owned by North Gem Trust (NGT).

• 50% of NGT is owned by Frasers Property (via subsidiary, FCL Amber)
• 50% of NGT is owned by TCC Prosperity (via subsidiary, Bright Bloom Capital)

TCCP is part of the TCC Group companies and entities controlled by Charoen Sirivadhanabhakdi and his wife Khunying Wanna Sirivadhanabhakdi. They are also the directors and controlling shareholders of Frasers Property.

Considering that the Hougang Mall AEI has already been announced, I don’t think that another acquisition would be any time soon.

Johor RTS Vs. Causeway Point – Challenge Or Potential?

The presentation paid significant attention to the Johor Bahru–Singapore Rapid Transit System (expected to be operational by the end of 2026) and portrayed the upcoming development as an opportunity.

When ready, the rail service will be able to carry up to 10,000 people per hour in each direction between Woodlands North in Singapore and Bukit Chagar in Johor. However, ridership in the first year is expected to be about 40,000 passengers daily, and the ride will take five minutes each way.

At the same time, the existing KTM train services between Johor Bahru and Woodlands (7,000 passengers daily) will cease operation.

The elephant in the room is obvious. There will undoubtedly be some impact on shoppers’ behaviour, especially if they are staying near the Woodlands North MRT / RTS station.

Woodlands MRT station (where Causeway Point is located, see map below) is one stop away from the upcoming Woodlands North MRT station, which will be the connection hub where two MRT lines intersect.

The number one question to ask is that how much of what shoppers would normally have spent in Causeway Point could potentially be lost due to the SG-JB RTS Link providing an easier way to travel to Johor.

Nevertheless, FCT’s strategy has always focused on prime suburban malls, and non-discretionary spending will always be a little more resilient.

We can see that FCT devoted many slides to highlighting the upcoming development of the northern region in Singapore, such as new homes, a commercial hub, a health campus, etc.

At the end of the day, the situation is rather fluid at the moment, and it is a little early before more substantial information surface, such as –

• How long would it take from boarding the MRT at Woodlands MRT station to stepping foot into City Square Mall in JB?
• How comfortable and efficient would the customs-clearing experience be?
• What would the weekend and public holiday crowd for the RTS look like?
• How would prices of goods and services in Johor adjust in response to the higher demand?

As regulars, we have noticed that some things in City Square aren’t really that cheap anyway, and Johor Bahru, in general, isn’t really that attractive for us to want to visit every month.

It will be about two years before the Johor Bahru–Singapore Rapid Transit System is operational, which means there is time to further reposition Causeway Point’s tenant mix and transition towards stickier tenants that offer products and services that residents can’t or won’t bother to get in Malaysia.

Summary Of FCT 2H FY2024 Full-Year Update

Pros and Positives:

• Strong Portfolio Performance: Retail portfolio occupancy at 99.7% with average rental reversion at +7.7%, reflecting healthy leasing demand
• Increased Shopper Traffic & Sales: FY24 saw higher tenant sales and foot traffic, with sales levels 20% above pre-COVID levels.
• Successful Acquisition and Enhancement: Acquired a 50% stake in NEX, diversifying the portfolio. Completed the enhancement of Tampines 1, achieving returns above the 8% target.
• Stable DPU: DPU for FY24 stands at 12.042 cents, reflecting consistent returns to unitholders.
• Inclusion in Key Indexes: Became a constituent of the Straits Times Index, marking progress and recognition in the market.

Cons and Negatives:

• Lower Revenue and NPI: FY24 revenue fell by 4.9% and NPI dropped 4.6% year-on-year due to the divestment of Changi City Point and AEI-related disruptions at Tampines 1.
• Flat DPU: No increase in DPU compared to the previous year, signaling limited distribution growth.
• High Borrowing Costs: Average borrowing cost remained elevated at 4.1%, though it declined slightly from previous quarters.

Key Challenges:

• Interest Rate Environment: Interest rate movements remain a key factor influencing borrowing costs, with expectations for rates to stay in the low-4% range.
• Operating Expense Management: Balancing energy expenses and optimizing costs will be crucial, with ongoing efforts to hedge energy costs.
• Market Uncertainties: Navigating potential disruptions in tenant sales or foot traffic amid evolving retail trends.

Reasons to Invest in the FCT:

• High-Quality Suburban Portfolio: The REIT’s focus on suburban malls near residential hubs ensures stable demand, resilient performance, and recurring footfall.
• Growth from Acquisitions and AEIs: Investments in quality properties like NEX and enhancement initiatives boost long-term value and revenue potential.
• Strong Market Position: As a leader in suburban retail and with inclusion in the Straits Times Index, FCT offers stability and visibility for investors seeking REIT exposure in Singapore.

Read About Frasers Centrepoint Trust

Kevin started Turtle Investor when his net worth languished at negative $25,755. His desire to turn things around led him to build passive income from investments and side hustles that pay for his daily expenses and vacations. You can learn more about Kevin here.