Letter to Unitholders

Dear Unitholders

We are pleased to present Frasers Centrepoint Trust and its subsidiaries’ (“FCT” and the “FCT Group”) Annual Report and Sustainability Report for the financial year ended 30 September 2022 (“FY2022”).

Year of recovery but hampered by geopolitical and trade tensions, persistent inflation and rising interest rates

As we transitioned progressively in the past year to the endemic phase of COVID-19, new challenges continued to emerge. We saw the war break out between Ukraine and Russia; wild swings in energy and commodity prices; aggressive rate hikes by the U.S. Federal Reserve; rising geopolitical and trade tensions as well as persistent inflation.

These challenges cast a long shadow over recovery of businesses and an economy still reeling from the COVID-19 pandemic. The capital markets have also been severely impacted as investors remained concerned about the impact on business earnings due to soaring operating and borrowing costs, supply chain disruptions, persistent inflation and deteriorating growth outlook. The Singapore REIT benchmark index, the FTSE REIT Index, retreated 13.25% during FY2022 as yields rose with rising interest rates. Analysts have also lowered their earnings forecasts for the REIT sector, citing rising interest rates, higher operating costs and slower growth prospects as reasons that would impact the financial performance of REITs in the near-term.

 

Opportunities ahead to cushion the impact

Notwithstanding these challenges, FCT has remained steadfast in managing its asset portfolio to deliver resilient performance and steady returns to its Unitholders. The Manager sees several opportunities that can help cushion the impact. These include rent growth and higher ancillary income. Data from CBRE shows prime retail rents in both Orchard Road and suburban malls are firming up. This bodes well for retail landlords. Other opportunities include asset enhancement initiatives (“AEI”) for value creation and higher contributions from the acquisition of the additional 10.00% stake in Waterway Point to be completed in FY2023. The Manager will stay vigilant on cost movements such as energy prices and contracted service fees and will adopt appropriate hedging strategies to manage the risks.

 

FY2022 PERFORMANCE REVIEW

Higher gross revenue, NPI and DPU; healthy financial position

FCT closed FY2022 with higher gross revenue, net property income (“NPI”) and distribution per unit (“DPU”). Gross revenue rose 4.6% year-on-year to S$356.9 million and NPI was 4.9% higher at S$258.6 million. The increase was attributed to full year contribution from the enlarged retail portfolio following the completion of the ARF Acquisition in FY2021; the absence of rental rebates provided to tenants in FY2021; and an increase in atrium income with the lifting of restrictions on atrium events in late March 2022. The increase was partially offset by the loss of contribution from properties divested in FY2021. The stronger financial performance lifted distribution to Unitholders in FY2022 by 1.7% to S$208.2 million and DPU by 1.2% to a new high of 12.227 Singapore cents from 12.085 Singapore cents last year.

FCT's financial position remained healthy with aggregate leverage at 33.0% and interest coverage ratio at 5.19 times. 70.5% of FCT’s total borrowings are on fixed interest rates and average cost of debt for FY2022 stood at 2.5%.

The aggregate appraised value of FCT’s investment portfolio remained stable at approximately S$5.5 billion with no change in valuation capitalisation rates used by the independent valuers. Net asset value per unit as at 30 September 2022 rose 1.3% to S$2.33 from S$2.30 a year ago.

 

Broad-based operating performance improvement

FCT achieved broad based improvements in operating performance with double-digit percentage year-on-year increases in shopper traffic and tenants’ sales, positive rental reversion, higher portfolio occupancy and lower retail portfolio occupancy cost.

The retail property portfolio registered improved committed occupancy of 97.5% as at 30 September 2022, up 0.2%-points year-on-year. The larger malls - Causeway Point, Waterway Point and Northpoint City North Wing - continued to maintain strong occupancies, with Causeway Point and Northpoint City North Wing registering 100% occupancy. Tampines 1 and Causeway Point registered the largest year-on-year improvement in occupancy of 2.0%-points and 1.4%-points respectively. The rental portfolio achieved better average rental reversion of 1.5% (on incoming versus outgoing basis) compared with the previous year’s -0.6%.

 

Strong tenants’ sales and shopper traffic growth; more than 70 new-to-FCT brands introduced

The easing of the COVID-19 safe management measures since end-March 2022 helped lift shopper traffic and tenants’ sales of the retail portfolio. Shopper traffic and tenants’ sales in FY2022 rose 12.4% and 11.3% year-on-year, respectively. With higher tenants’ sales, occupancy cost for the retail portfolio continued to improve to 16.2% in FY2022, down from 19.2% in FY2020 and 17.5% in FY2021, providing headroom for rental growth.

We were able to attract more than 70 new-to-FCT brands to our malls in FY2022. Some notable brands include the first Don Don Donki in the North at Northpoint City, new-to-Singapore Café BomBom from South Korea which opened at Tampines 1 and Tiong Bahru Bakery’s first outlet in a suburban mall at Waterway Point. These new tenants are testament to the strong appeal and relevance our suburban malls continue to have for both retailers and shoppers.

 

Making progress in our sustainability journey

Sustainability is a core component of FCT’s business strategy. The Manager works closely with FCT’s Sponsor, Frasers Property Limited (“Frasers Property” or the “Group”) towards the Group’s goal to net-zero carbon by 2050. We have made notable progress in our sustainability journey in FY2022. We introduced Technology Risk Management and Environmental Risk Management in our governance framework and aligned our climate-rated disclosures with the Task Force on Climate-Related Financial Disclosures (”TCFD”) recommendations.

For the second consecutive year, we achieved a 5-Star rating in the 2022 GRESB Real Estate Assessment. We believe this is a meaningful benchmark that enables our stakeholders to compare FCT’s performance with its global real estate peers in the same sector. FCT has also received an “A” rating from the MSCI ESG Ratings in May 2022, improving from its previous “BBB” rating, for advancing in its management of financially relevant ESG risks and opportunities.

We invite you to read the details in the Sustainability Report which is an integral part of this Annual Report.

 

Looking ahead - FCT is well-positioned to ride the rising trends

The COVID-19 pandemic has transformed many aspects of the way we live, work and play, which include the rise of omnichannel retailing and shift to hybrid work arrangement. FCT is well-positioned to benefit from these trends due to its portfolio properties’ competitive advantages of being near homes and transportation nodes, focus on diversified essential trade and services, high quality amenities and a well-established shopper loyalty program.

The COVID-19 pandemic has transformed many aspects of the way we live, work and play, which include the rise of omnichannel retailing and shift to hybrid work arrangement. FCT is well-positioned to benefit from these trends due to its portfolio properties’ competitive advantages of being near homes and transportation nodes, focus on diversified essential trade and services, high quality amenities and a well-established shopper loyalty program.

Looking ahead, the Manager remains focused on the financial and operational performance of the FCT portfolio to optimise returns to the Trust and its Unitholders. It will also continue to look at AEI of its properties for value creation and acquisition opportunities. The opportunities in the Sponsor’s pipeline include Northpoint City South Wing, which is owned by Frasers Property and the TCC Group.

 

Shopper traffic at 50-70% of pre-COVID level

Overall shopper traffic in FY2021 was between 50% and 70% of the pre-COVID level. On a comparable basis, the aggregate shopper traffic of Causeway Point, Northpoint City North Wing, Changi City Point and Waterway Point was reduced by about 14% to 83.4 million from 96.6 million in FY2020.

The recovery of tenants’ sales and shopper traffic will depend on how COVID-19 develops, for better or worse, and the government’s response.

 

ACKNOWLEDGEMENTS

We welcome Ms Soon Su Lin who was appointed to the board on 1 March 2022 as Non-Executive and Non-Independent Director. Su Lin brings on board a wealth of real estate industry experience in retail property development and investment, real estate consultancy, leasing and management leadership.

We thank Mr Christopher Tang, who retired from the FCAM board as Director at the end of 2021 after 16 years of illustrious service. He also served as the first Chief Executive Officer of FCAM from July 2006 to March 2010. We thank Christopher for his invaluable contributions and wish him all the best in his future endeavours.

In closing, we would like to express appreciation to our board members for their stewardship and advice, and the management and staff for their commitment and hard work. We are grateful to our stakeholders, including our Unitholders, tenants and shoppers as well as our business partners for their confidence and support.

 

Cheong Choong Kong
Chairman

Richard Ng
Chief Executive Officer

 

The manager