Frasers Commercial Trust Continues to Maintain DPU of 2.40 Cents For 4QFY19

One thing I liked about Frasers Commercial Trust is that it has been maintaining its Distribution Per Unit (“DPU”) over the past quarters and past years. On 22nd October 2019, Frasers Commercial Trust announced its 4QFY19 financial results. Compared to 3QFY19, the financial results have improved slightly.

In 4QFY19, gross revenue increased by 1.7% to S$32.9 million as compared to 4QFY18. Net Property Income (“NPI”) increased by 0.5% to S$21.7 million while Distributable Income increased 2.3% to S$21.9 million. The Distribution Per Unit (“DPU”) remains unchanged. Depending on how you view this, DPU remaining unchanged can be a good thing or bad thing for investors. In my opinion, a good REIT is one that can grow its DPU year on year. But given the lower occupancy at Alexandra Technopark, divestment of 55 Market Street and weakening Australian Dollar, it is already a miracle that Frasers Commercial Trust is able to maintain its DPU pay out of 2.40 cents for each quarter.

4QFY19 Financial Results

4QFY19
(S$’000)
4QFY18
(S$’000)
Change
Gross Revenue 32,897 32,477 1.7%
Net Property Income 21,727 21,611 0.5%
Distributable Income 21,905 21,421 2.3%
Distribution Per Unit (“DPU”) (cents) 2.40 2.40 0%

Full Year FY19 Financial Results

Even though the 4QFY19 financial results have turned positive, the full year FY19 financial results does not seem so rosy. As mentioned earlier, Frasers Commercial Trust is impacted by the lower occupancy at Alexandra Technopark, divestment of 55 Market Street and weakening Australian dollar.

Gross revenue declined by 6.2% to S$125.1 million. Net Property Income declined by 7.4% to S$82.7 million.

FY19
(S$’000)
FY18
(S$’000)
Change
Gross Revenue 125,060 133,306 (6.2)%
Net Property Income 82,689 89,272 (7.4)%
Distributable Income 86,903 82,726 5.0%
Distribution Per Unit (“DPU”) (cents) 9.60 9.60 0%

Occupancy

As of 30th September 2019, the overall portfolio occupancy stood at 95.0%. The occupancy rates for the Singapore portfolio, the Australia portfolio and Farnborough Business Park (“FBP”) were 94.9%, 94.5% and 97.4%, respectively, as at 30 September 2019

Debt

The gearing ratio stood at 28.6% which is one of the lowest among S-REITs currently.  All borrowings are on unsecured basis, which affords further financial flexibility.

Current Valuation

At a full year dividend pay out of 9.60 cents and current share price of S$1.64, this translates to a current dividend yield of 5.85%. However, there are key risks or concerns to buying into Frasers Commercial Trust which I identified below.

Key Risks

There are a few key risks which I have identified which may have an impact on Frasers Commercial Trust

  • Uncertainties with regard to the eventual outcome and impact of Brexit.
  • Microsoft pulling out of Alexandra Technopark in Jan 2020. However, the manager mentioned that forward lease commitments have been secured for approximately 72% of the space, with the balance under advanced discussions with prospective tenants.

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