Frasers Property is a property company that has businesses in Singapore, Australia, Southeast Asia, China and Europe.
Their hospitality footprint spans over 80 cities across Asia Pacific, Europe, Middle East and North Africa.
Frasers is also a sponsor to four REITs, namely Frasers Centrepoint Trust (FCT), Frasers Commercial Trust (FCOT), Frasers Hospitality Trust (FHG) and Frasers Logistics & Industrial Trust.
FCT invests in quality income-producing retail properties in Singapore and overseas, and to achieve long-term growth in net asset value.
FCOT invests mainly in commercial real estate properties.
FHT is a global hotel and serviced residence trust.
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FLT invests in logistics and industrial real estate assets located within major logistics and industrial markets.
This post aims to give a comparison of these 4 different REITs.
Property portfolio
FCT
- Causeway Point
- Northpoint City North Wing
- Changi City Point
- YewTee Point
- Anchorpoint
- Bedok Point
FCOT
- China Square Central
- 55 Market Street
- Alexandra Technopark
- Central Park (Perth)
- Caroline Chisholm Centre (Canberra)
- Farnborough Business Park (UK)
- 357 Collins Street (Melbourne)
FHT
- Novotel Melbourne
- Novotel Sydney Darling Square
- Sofitel Sydney Wentworth
- Fraser Suites Sydney
- Intercontinental Singapore
- Fraser Suites Singapore
- Fraser Suites Edinburgh
- Fraser Suites Glasgow
- Ibis Styles London Gloucester
- Park International London
- Fraser Place Canary Wharf London
- Fraser Suites Queens Gate London
- ANA Crowne Plaza Kobe
- Westin Kuala Lumpur
- Martim Hotel Dresden (Germany)
FLT
- 61 properties across 5 states
- 1 in perth
- 4 in Adelaide
- 30 in Melbourne
- 15 in Sydney
- 11 in Brisbane
Financial performance
Figures are compared between 2Q2018 from 2Q2017.
FCT and FLT performed better than the other 2 REITs with improvement in gross revenue, net property income and DPU figures.
FCOT and FHT suffered substantial declines in their financial figures.
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In FCOT, this was due to lower occupancy rates for Alexandra Technopark, China Square Central, 55 Market Street, Central Park and 357 Collines Street. In addition, the absence of one-off payments in relation to a termination of lease in Central Park and the effects of a weaker Australian Dollar weighed on performance.
In FHT, weak Japan and Singapore portfolios, competitive trading environment in Sydney and Novotal Sydney Darling Square’s renovation weighed on performance.
Higher finance costs were also incurred due to the refinancing of existing term loans with longer tenure bonds.
FCT
- Gross revenue: S$48.6m from S$45.7m, up 6.3%
- Net property income: S$34.8m from S$32.6m, up 5.0%
- Distribution per unit (SG cents): 3.1 from 3.04, up 2.0%
FCOT
- Gross revenue: S$33.0m from S$40.2m, down 18%
- Net property income: S$22.4m from S$30.0m, down 25%
- Distribution per unit (SG cents): 2.4 from 2.51, down 4%
FHT
- Gross revenue: S$37.5m from S$38.7m, down 3.1%
- Net property income: S$27.7m from S$28.9m, down 4%
- Distribution per stapled security (SG cents): 1.1125 from 1.2063, down 7.8%
FLT
- Gross revenue: A$43.6m from A$40.9m, up 6.4%
- Adjusted net property income: A$33.3m from A$30.9m, up 8.1%
- Distribution per unit (SG cents): 1.81 from 1.75, up 3.4%
Financial position
In terms of gearing, FCT has the lowest at 29.2%, followed by FLT at 30.5%, FHT at 33.1% and FCOT at 35.3%.
The REITs generally have low gearing ratios compared to other Singapore REITs’ average of mid 30%.
This is positive for the REITs suggesting they may be able to control interest expenses if interest rates rise.
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The cost of borrowings range from 2.4% to 2.9%, the lowest being FCT at 2.4%, followed by FHT at 2.7%, FLT at 2.9% and FCOT at 2.99%.
Interest cover ranges from 4.1 times to 7.8x, the lowest being FCOT at 4.1, followed by FHT at 5.2, FCT at 6.64 and FLT at 7.8.
A higher interest coverage ratio is better. The ratio is calculated as dividing a company’s earnings before interest and taxes (EBIT) by the company’s interest expense for the same period.
FCT
- Gearing: 29.2%
- % of borrowing on fixed rates or hedge via interest rate swaps: 56%
- Cost of borrowing: 2.4%
- Interest cover: 6.64x
FCOT
- Gearing: 35.3%
- % borrowings on fixed rates: 82%
- Average borrowing rate: 2.99%
- Interest cover: 4.1x
FHT
- Gearing: 33.1%
- % borrowings on fixed rates: 87.8%
- Effective cost of borrowing: 2.7%
- Interest cover: 5.2x
FLT
- Gearing: 30.5%
- % borrowings on fixed rates: 85%
- Weighted average cost of borrowings: 2.9%
- Interest cover: 7.8x
Operational performance
Occupancy for the REITs are generally healthy at above 90% with the exception of FCOT at 83.5%. This is a decline from previous quarter’s 86.6% and a year ago 91.8%.
The trend of declining occupancy in FCOT is something to watch out for as this will have downward pressure on distributions in the near and medium term.
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The main reason for declines in occupancy for FCOT is due to 55 Market Street (92.9% at 2Q2017, 87.9% in 2Q2018), Alexandra Technopark (91% at 2Q2017, 70.4% at 2Q2018 due to rejuvenation and repositioning of the asset) and Central Park (85.2% at 2Q2017, 68.3% at 2Q2018).
FCT
- Occupancy: 94%
- WALE by gross rental income: 1.8 years
FCOT
- Occupancy: 83.5%
- WALE by gross rental income: 4 years
FHT
- Occupancy: Nil
- WALE: Nil
FLT
- Occupancy: 99.4%
- WALE by gross rental income: 6.75 years
Outlook
FCT
- According to the REIT manager, renewals will be focused on the larger malls (Causeway Point and Northpoint City North Wing) and YewTee Point
FCOT
- Asset enhancement at Alexandra Technopark is on track to complete mid-2018
- Facilities include wellness, lifestyle, social and other amenities. In addition, there will be futsal courts, end-of-trip facilities and exercise areas
- China Square Central’s 304 room Capri by Fraser Hotel will bring increased activity to the area. Construction of the 16 storey hotel and commercial project are on track to be completed by mid-2019
- China Square Central’s retail podium will be enhanced with NLA increased to 75,000 sqft from 64,000 sqft currently
- The S$38m project started in 1Q2018 and is on track to complete by mid-2019
FHT
- A large number of new rooms is anticipated to enter Australia’s market, there is likely to be a challenge in increasing room rates in the near to medium term.
- Brexit continues to cast a shadow over the future of the UK economy
- Demand fundamentals remain strong in Japan with the support of major events such as Rugby World Cup 2019 and 2020 Tokyo Olympics
- A significant supply pipeline in KL may put downward pressure on occupancy and ADR
- Dresden continues to grow its pipeline of MICE events for 2018 including the Graphene Conference, Lay Supply, Bauen Kaufen Wohnen among others
FLT
- FLT’s performance is tied very closely to the Australia economy since all of FLT’s assets are in the country
- Non-mining investment performance has improved and business conditions are healthy
- Public infrastructure spending and population growth has supported the economy
- Conditions in Sydney, Melbourne and Brisbane are healthy with rents anticipated to grow
Overall, FCT and FLT appear to be good picks, in my opinion.
Many of FCT’s malls are in the suburban areas where non-discretionary spending still happens.
FLT is supported by generally strong fundamentals in the industrial and logistics sector. Infrastructure spending and population growth are two levers that continue to support the Australian economy.
FCOT faces headwinds in the near term due to asset enhancement programs (Alexandra Technopark and China Square Central) that is depressing the REIT’s occupancy rate.
FHT’s assets in Australia, Japan and Malaysia faces a large supply pipeline in the coming years, putting downward pressure on revenue and profit.
REITs Asia Pacific 2018 conference
To get up to speed on how Asia Pacific markets are performing and to hear from experts in the field, the 5th edition of the REITs Asia Pacific 2018 conference is a perfect place to get started.
Register for the conference here with the code “PISREITS” to secure your seat now!
Organized specially for institutions such as banks, developers, funds, REITs, lawyers and government agencies, the conference will be held at Sheraton Towers Singapore on 2 Aug 2018.