This is one Singapore REIT you might want to own in your portfolio.
In my last write-up, there’s one thing I’ve not covered about Frasers Centre Point (SGX:J69U) but I’ll tell you here.
Well, first things first, FCT is one of the biggest Singapore retail REIT. At a market cap of S$4 billion, FCT owns nine high-quality ‘heartland’ malls.
Heartland malls are not the high-end malls we see along Orchard Road belt.
Instead, heartland malls are located in the heart of Singapore’s suburban regions. They are near homes and within minutes of the MRT stations.
Heartland malls serve a different function. Residences go there to buy groceries, daily essentials and dining. It’s a “last-mile” delivery hub for residences.
Imagine this: you get off the MRT from work, drop by the nearest shopping mall to grab dinner and buy last minute groceries. On weekends, heartland malls are the “go-to” family entertainment.
That’s why…
This Singapore REIT owns the last bastion of retail malls that will not suffer disruption
What’s more, F&B tenants account for 38% of the REIT’s gross rental income. That’s far higher than any other retail REITs in Singapore.
And you know, F&B are the few businesses that are resilient to e-commerce.
The truth is, FCT’s shopper traffic reached barely 60% of 2019 pre-COVID level. But FCT’s tenants are already making just as much sales before COVID (see green box below).
What does this mean? People are still shopping at malls, whether there’s a pandemic, or not.
Source: Frasers Centrepoint Trust 2021 Presentation
What I’m hopeful is, as Singapore opens up, we will see a full force of shoppers returning to the scene.
In its latest full year results, FCT’s gross revenues grew 107.5% to S$341 million. While distributable income grew 102% to S$204 million.
Distributable income is what unitholders get if FCT decides to pay out all of its profits.
Distribution per unit (DPU) grew 33% to 12.085 cents per unit.
The huge increase was because FCT completed buying its remaining stake in AsiaRetail Fund. FCT now fully owns Tiong Bahru Plaza, Central Plaza, White Sands and Tampines 1.
But that’s not all. The more interesting thing is, it’s impossible to built new malls near FCT’s heartland malls. Land is limited in Singapore.
In other words, FCT dominates suburban retail.
According to MTI, suburban retail rents have remained stable. Orchard road prime area retail rents have continued to fall.
And this is the reason why FCT’s shares have climbed higher than many other Singapore REITs.
In fact, since IPO in 2006, FCT shares have more than doubled. Not many Singapore REITs can achieve this. I’m not counting dividends yet
Source: Yahoo! Finance, Dividend Titan
FCT grew dividends from 6.55 cents per unit in 2007 to 12.085 cents per unit in 2021. At current share prices of S$2.37 per share, that’s a 5% dividend yield today.
Its dividends paid out in 2021 was much higher than it was in pre-COVID levels at 12.07 cents per unit.
This Singapore REIT still has the firepower to grow bigger
The one thing I’ve missed out from my last write-up is FCT has a low gearing ratio, In fact, it has dropped from 35% in March 2021 to 33% in September 2021 (see green box below).
Gearing ratio is a simple measure to calculate a Singapore REIT’s leverage. It’s important to know it. This determines how much more FCT can borrow from banks to expand its properties.
It also tells me how much more FCT can grow its properties. Don’t forget, MAS imposes a 50% gearing limit to all Singapore REITs.
Source: Frasers Centrepoint Trust 2021 Presentation
At such a low gearing ratio, it’s not only safer for dividend investors, but FCT has more firepower to grow its assets. And produce higher dividends for investors.
Singapore REITs are a staple of any dividend investor’s portfolio. The problem is not all REITs are worth buying. That’s because properties are a commodity asset. Most of the time, property prices are expensive and “priced-in”. So the thing is, it’s worth looking at a REIT if it pays a fairly attractive dividend yield.
Despite the ongoing story of online disruption, I believe FCT will still continue to drive good gains for investors in the years to come.
This is one stock worth owning in your portfolio.
Sometimes investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
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