In Singapore, there are many REITs that have both local Singapore and overseas properties.
However, the one SGX-listed REIT that owns a lot of the most recognisable retail properties is Frasers Centrepoint Trust (SGX: J69U).
That’s because the REIT owns a lot of the biggest Heartland shopping malls in Singapore, where most of the local population frequent on a daily or weekly basis.
Frasers Centrepoint Trust announced on Tuesday (30 August) morning that it has agreed to sell its Changi City Point mall for S$338 million to an unrelated third party.
So, for S-REIT investors and Frasers Centrepoint shareholders, what do they need to know about this transaction? Let’s find out.
Strengthening its financial position
Changi City Point is a 60-year leasehold property (commencing 30 April 2009) that has a net lettable area of 208,453 sq ft.
The property generated net property income (NPI) of S$14.57 million in FY2022 for Frasers Centrepoint Trust, making up just 5.6% of the REIT’s overall FY2022 NPI of S$258.6 million.
For investors, the main driver of this asset disposal is clear – strengthening the REIT’s financial position.
Management said as much when it outlined the positive impact the Changi City Point sale will have for its financial position and various leverage ratios.
As readers can see below, post-disposal, the REIT’s leverage ratio will drop to 37.1%, the percentage of loans on fixed rates will rise to 73% and the average cost of borrowings will also fall 10 basis points (bps) to 3.6%.
Source: Frasers Centrepoint Trust presentation as of 30 August 2023
Making Frasers Centrepoint Trust’s portfolio more efficient
In addition to the improved leverage and cost of borrowings, the REIT’s management said that its overall portfolio’s committed occupancy rate would rise to 99.3% post-disposal (from 98.7%).
Additionally, following the sale, its portfolio’s average gross rent per sq ft will rise 3.7% while its portfolio’s tenants’ sales per sq ft will increase 3.9%.
Perhaps most importantly from a revenue visibility perspective, Frasers Centrepoint Trust’s weighted average lease expiry (WALE) will rise by 2.3 years after the sale.
Focusing on Singapore core retail strategy
By freeing up more capital, the sale will help Frasers Centrepoint Trust focus on its core suburban retail strategy in Singapore going forward.
For the REIT’s investors, the pro-forma impact on distribution per unit (DPU) of the sale looks minimal.
Management noted in its press release that if it had disposed of Changi City Point on 1 October 2021, the DPU for FY2022 would have fallen by just 1.85% from 12.227 Singapore cents to 12.001 Singapore cents.
With nine retail malls and one office property post-disposal, along with assets under management (AUM) of S$6.5 billion, Frasers Centrepoint Trust’s overall portfolio still looks robust.
Frasers Centrepoint Trust shares ended the day up 0.9% at S$2.23, giving investors a 12-month forward dividend yield of 5.5%.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.
