FCT eyes relaxed Covid restrictions to bring shoppers back as retail rental reversion dips

WITH over a quarter of leases at its portfolio of retail malls due for renewal in the new financial year, Frasers Centrepoint Trust (FCT) J69U : J69U 0%is looking forward to improved leasing sentiment with a "sustainable reopening" of Singapore businesses.

For FY2021 ended September, FCT saw its retail rental reversion fall to negative 0.6 per cent. The average portfolio rental reversion for FY2020 was 4.2 per cent, as a substantial portion of the renewals were completed in the first half of last year, prior to Singapore's Covid-19 "circuit breaker".

Between July and September 2021, FCT's portfolio shopper traffic was at 50 to 60 per cent of pre-Covid levels, largely due to various tightened measures due to a rise in daily infection cases.

"Together with the various things that are being done - booster shots, reopening, vaccinated travel lanes (VTLs), and all that - it is important, not only in terms of more shopper traffic, footfalls, people going back to work, but all this actually helps from the psychological aspect as well," said Richard Ng, chief executive officer of the Reit (real estate investment trust) manager, at a briefing following the release of FCT's FY2021 financial results on Wednesday (Oct 27).

"Looking at it, we expect the leasing sentiment to improve," he added. "It's more important to have a more sustainable reopening, and not a reopening and then shutting back down again."

FCT's retail rental reversion figures for FY2021 were dragged down by Changi City Point, which saw negative rental reversion of 9.8 per cent. Only 2 other malls in its portfolio - Tampines 1 and Century Square - had negative rental revisions, at -0.1 per cent and -2.8 per cent respectively.

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"If you look at today, it seems like this asset (Changi City Point) is lagging, the performance has not been good because reversion has been weak, occupancy level is not very strong. But, if you recall, pre-Covid, this mall was doing reasonably well," Ng said.

"With the January opening for all employees, that could see a return of some level of traffic back to the mall," he said. The other "big component" that could drive shopper traffic and sales back to Changi City Point, Ng added, would be the return of large-scale events at the nearby Singapore Expo.

Despite the lower shopper footfall and continued headwinds due to the evolving Covid-19 situation, the manager said overall portfolio sales have remained resilient due to an improvement in the conversion of sales for shoppers going through its malls.

Portfolio tenants' sales between July and September was about 93 per cent to 98 per cent of pre-pandemic levels, although performance of the various trade sectors and among tenants remains uneven.

FCT's retail portfolio occupancy also improved to 97.3 per cent, from 96.4 per cent in the third quarter of 2021.

"The observation is that, especially during this period of time, people going to the mall tend to be more purposeful. You don't have a lot of shoppers going to the mall because they are going to work or coming back from work… (and) you don't have people going to the mall for leisure or to the playground," Ng said.

He also noted that shoppers may make more purchases as they reduce the frequency of visits to the mall.

"Our malls provide and cater to the basic necessity, essential products. You still need to get all this stuff. So you still go and get it, and you may spend more at each of your trips down to the mall," Ng added.

For the second half of the year ended September, FCT's distribution per unit (DPU) rose by 39.3 per cent to 6.089 Singapore cents, from 4.372 cents for the same period a year ago.

Gross revenue was up 159.9 per cent to S$167.5 million for the half-year period, from S$64.5 million in the previous year.

The improved full-year financial performance is attributed to the acquisition of its remaining 63.1 per cent stake in AsiaRetail Fund and lower rental rebates granted to tenants this year, the Reit manager said.

Net property income (NPI) grew 213.2 per cent on year to S$120.9 million for the half year, from S$38.6 million.

Distributable income rose 243.9 per cent on year to S$103.6 million, from S$30.1 million.

The distribution will be paid out on Nov 29, 2021, after books closure on Nov 5, 2021, at 5 pm.

Meanwhile, for the full year ended September, DPU was higher at 12.085 cents, versus 9.042 cents a year ago, and distributable income grew 102.4 per cent to S$204.7 million.

Gross revenue was 107.5 per cent higher at S$341.2 million, while NPI rose 122.4 per cent to S$246.6 million for FY2021.

FCT's gearing level as at Sep 30 was at 33.3 per cent, and its year-to-date interest coverage ratio was 5.11 times.

Total assets as at Sep 30 stood at S$5.9 billion, an increase of around S$2 billion, due to the AsiaRetail Fund acquisition, but partially offset by the divestment of Bedok Point, Anchorpoint and YewTee Point in FY2021.

"In this challenging time, we see omnichannel retailing as a viable way to help cushion the impact on our tenants and to generate additional sales," said Ng. "Going forward, we believe there is resilient demand for retail spaces within well-located and dominant suburban retail malls as the economy reopens."

Units of FCT closed up S$0.03 or 1.3 per cent at S$2.36 on Wednesday, following the results release.