Frasers Centrepoint Trust Cost Of Debt Soars From 2.16% (2021) To 4.20% (2024) | Turtle Investor – The Global Tofay

Frasers Centrepoint Trust Cost Of Debt Soars From 2.16% (2021) To 4.20% (2024) | Turtle Investor - The Global Tofay Global Today

When interest rates go up, it becomes more expensive for REITs to borrow money to refinance their loans, which erodes dividends.

This can spell trouble for Real Estate Investment Trusts (REITs), and Frasers Centrepoint Trust (FCT) is definitely feeling the heat.

Over the past few years, FCT’s cost of debt has nearly doubled, going from 2.16% in 2021 to 4.2% in 2024.

This significant increase not only affects borrowing costs but also eats into the dividends that investors have come to expect.

Despite this, FCT has achieved a dominant position in the suburban mall sector in Singapore that will likely remain unthreatened for a long time.

Cost Of Debt Ballooned Since Fed Rate Hikes

Risk-free returns are literally effortless to achieve right now due to the persistently high interest rates, and borrowing costs have hovered at a two-decade high for nearly a year by now.

As a result, when REITs need to refinance their existing loans (which were secured at a much lower cost), they have to borrow at much higher rates.

I have collated the table below showing Frasers Centrepoint Trust (see financial updates) average cost of debt from pre-pandemic days in 2019 to the present day.

1 | Turtle Investor

The dates correspond to Frasers Centrepoint Trust’s release of financial results, which illustrates how brutal the environment is and why prices are tanking.

The cost of debt has almost doubled since 2021, which is eating into the income generated by the portfolio of properties. And yes, it is a little higher than I would have liked.

In comparison, the average cost of debt for both CapitaLand Integrated Commercial Trust (CICT) and Lendlease Global Commercial REIT (LREIT) is 3.5% as of 31 March 2024.

Also, remember that REITs use borrowed money (loans) to manage their daily activities (operations), buy new properties (acquisitions), and improve existing ones (asset enhancement initiatives, i.e. AEI).

This is why gearing, cost of debt and percentage of debt pegged fixed rates are important.

REITs don’t ever fully repay their debts but only service the interest expense on their loans. Therefore, the cost of debt is an important factor affecting REITs’ yield.

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Looking at the debt maturity profile, the borrowings are well spread out over five years, but of course, a not insignificant portion of debt maturity in FY2025 needs to be addressed.

AUM Surged From $2.8b (FY18) To $7.1b (FY24)

Since FY2018, both assets under management (AUM) and net lettable area (NLA) have grown by 2.5x.

In particular, I am happy to see that FCT’s management has actively worked to strengthen its portfolio by divesting less attractive properties, improving already strong ones, and acquiring ARF, WWP, and NEX in just a few years.

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FCT — The Official King Of Suburban Malls

A picture speaks a thousand words.

With the acquisition of 50% of NEX, FCT has now overtaken CapitaLand Integrated Commercial Trust (CICT) to become the number one owner of retail malls outside the central area of Singapore.

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At this point, the competition is obviously between FCT and CICT. The rest of the competitors are too far from the runaway leaders and don’t quite have the calibre to catch up.

  1. Frasers Centrepoint Trust
  2. CapitaLand Integrated Commercial Trust
  3. Far East Organization
    – Messy portfolio
  4. Link REIT
    – Jurong Point
    – AMK Hub
    – Swing By @ Thomson Plaza
  5. Lendlease Global Commercial REIT
    – JEM
    – 313@Somerset
    – Parkway Parade

Besides, there is a limited number of quality suburban malls located next to MRT stations with outstanding catchment areas. Look closer, and you will understand the reason for the FCT divestments.

Defensive & Resilience

At the end of the day, it is still the boring fundamentals that truly matter to me.

  • Very strong committed occupancy at 99.9%
  • Well-connected locations and a large catchment area
  • 53% of retail malls provide essential services such as F&B, services, supermarket
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Here’s a map to show why FCT remains my top choice for Singapore-based REITs, simply because I am bullish on quality assets.

Summary

I have been closely monitoring Frasers Centrepoint Trust’s quarterly updates, and there have been few surprises so far.

It is clear that FCT is well-positioned for resilience (looking at how it navigated the pandemic) and growth, with a lot of the heavy lifting having been completed in the past few years with the acquisition of —

  • 100% of the ARF portfolio
    • Tiong Bahru Plaza
    • White Sands
    • Hougang Mall
    • Century Square
    • Tampines 1
  • 50% of NEX
  • 50% of Waterway Point

Plus, the divestments of —

  • Anchorpoint
  • YewTee Point
  • Bedok Point
  • Changi City Point
  • Hektar REIT

Without a doubt, FCT has the leading position as the largest prime suburban retail space owner in Singapore, and it is the largest pure-play retail S-REIT.

FCT cemented its position among S-REITs with its inclusion in the STI Index in March 2024, and I’m pretty sure it will keep it.

  • The 2H 2024 update (Oct 2024) will be looking better with FCT’s full contribution from the 50% ownership of NEX.
  • The 1H2025 update (Apr 2025) will give a more complete picture with Tampines 1 AEI having completed in September 2024.

Meanwhile, I have continued to add to my FCT position slowly, regardless of the volatile interest-rate environment.

Read About Frasers Centrepoint Trust

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