Why Is Frasers Centrepoint Trust So Popular Among Dividend Investors?

Frasers Centrepoint Trust (FCT) is Singapore's second-largest retail REIT with a market capitalization of $2.9 billion at its current share price of $2.59. FCT is also one of Singapore's most popular retail REITs among investors and its share price has almost returned to its pre-COVID levels of $2.90. This shows investors' confidence in FCT's performance even in the COVID-19 pandemic where there has been a large sell-off for most retail REITs. FCT is famous for its high-quality suburban retail properties that are strategically located near MRT stations. If you are ever in Singapore, you would have definitely visited one of their popular malls. Why is FCT so popular among dividend investors?

Dividends

FCT has a 15-year consistent dividend history and has been paying out dividends since it was listed in 2006. They have been diligently paying out dividends regularly to shareholders without fail since their Initial Public Offering. FCT's management has a good track record in ensuring that FCT's dividends are sustainable and high-quality. Their average dividend yield for the past 5 years is 4.59% which is slightly lower than the blue-chip CapitaMall Trust (5.6%). Their distributable income to unitholders and distribution per unit decreased in 1H 2020 due to the COVID-19 pandemic which severely decreased shopper traffic at retail malls. The distribution to unitholders decreased by 8.7% from $57 million in 1H 2019 to $52 million in 1H 2020 and the distribution per unit decreased by 24.2% from 6.157 cents to 4.670 cents. FCT's decrease in dividends for 2020 is expected due to the COVID-19 pandemic and circuit breaker measures in Singapore. Furthermore, FCT retained part of their distributable income in 1H 2020 to ensure that they would have no cash flow problems which reflected their prudent capital management. FCT's long dividend history and high-quality dividends make it one of the favorite retail REITs for dividend investors in Singapore.

Well-Diversified Tenant Portfolio and High Occupancy Rate

FCT's portfolio consists of 7 suburban retail properties in Singapore consisting of 1.4 million square feet of net leasable area worth a total of $3.7 billion. Moreover, FCT owns a 36.9% stake in PGIM Real Estate AsiaRetail Fund Limited (ARF) which owns, among others, another 5 suburban retail properties in Singapore totaling 1 million square feet of net leasable area, and a 31.15% stake in Hektar REIT which owns a portfolio of suburban retail properties in Malaysia. FCT has an extremely well-diversified tenant portfolio and is not overly reliant on a few tenants for the majority of its portfolio revenue. FCT's top 10 tenants only contributed 22.4% of its portfolio revenue as of 30 June 2020. Also, FCT's tenant base is extremely diversified and their tenants originate from many different industries. These help to diversify FCT portfolio sources of income and ensure that FCT would not be significantly impacted in tough economic times such as the recent COVID-19 pandemic. Additionally, FCT has a high occupancy rate of 94.6% (>90%) as of 30 June 2020. This shows that FCT is maximizing most of its properties' potential to generate as much income as possible for shareholders. FCT's well-diversified tenant portfolio and the high occupancy rate are some of the reasons it's such an attractive REIT for investors. 

Appropriate Debt Gearing Ratio

FCT has a debt gearing ratio of 35% as of 30 June 2020 which is well within my appropriate levels of  <40%. (Monetary Authority of Singapore has increased REITs debt gearing ratio from 45% to 50% due to the COVID-19 pandemic). REITs often use debt as leverage to acquire more properties and fund their acquisitions to expand their portfolio at a faster rate. Investors often avoid REITs with high debt gearing ratio as they might potentially face cash flow problems in the future. FCT's management has exercised prudent capital management and structured FCT's debt payments such that no significant amount of debt is due in any one year in the future. The average debt maturity is 2.3 years and they have cash of $72 million as of 30 June 2020 which allows FCT to have ample financial flexibility. FCT has also secured $400 million of debt capital comprising $200 million in notes and $200 million in committed revolving credit facilities. FCT's management has always ensured that FCT has a strong healthy balance sheet and does not face any cash flow problems in its history. I am confident that FCT can keep up this reputation of prudent capital management and not run into significant cash flow problems in the future. 

Verdict

In my opinion, you can consider adding Frasers Centrepoint Trust to your portfolio as it is a proven resilient retail REIT in Singapore which is also sponsored by Frasers Property Limited. FCT's portfolio is definitely recovering now that 95% of its tenants have reopened and circuit breaker measures have been eased in Singapore. Furthermore, its recent acquisition of an additional 12.07% in ARF on 30 June 2020 is going to make FCT's portfolio even more diversified and resilient. I personally feel that FCT has good growth potential in the future and many dividend investors in Singapore are confident of FCT. This can be seen from how fast FCT's share price has rebounded since its sharp decline in March 2020. You can definitely think about adding this retail REIT to your portfolio in the long run. 

Source: Frasers Centrepoint Trust 3Q 2020 Financial Results

What do you think of FCT?