Ask any foreigner which parts of Singapore they have visited, one would typically find ‘Orchard Road’ – the famed shopping district of Singapore where luxury brands such as Hermes, Louis Vuitton and Anne Fontaine reside – to be one of the most common answers. It is little wonder why Orchard Road is a ‘must-go’ for many tourists and why many retail mall managers wish to get a slice of this prime locale.

Bucking this trend is Frasers Centrepoint Trust (FCT), a real estate investment trust whose portfolio only consists of ‘points’ in Singapore. These include Causeway Point (CWP), Northpoint (NP), Bedok Point, YewTee Point and Anchorpoint. When recorded in the plain old report card, these ‘points’ add up to the grade of ‘Distinction’. After all, FCT did post a staggering 30% increase in gross revenue to register $35.9 million and 31.3% increase in income available for distribution to $19.7 million in 1Q12 ended December 2011, over the previous corresponding period. Not to mention a 12.8% increase in distribution per unit from $0.0195 to $0.0220.

Results Speak For Themselves

While the outstanding performance may be attributed to the opening of Bedok Point, which is the newest entry into its portfolio of malls, this does not represent all the good work FCT had done as Bedok Point contributes about 8% of total revenue currently. In fact, rent reversions contributed most of the incremental gross revenue.

Figure 1: FCT’s gross revenue 1Q12 vs 1Q11

Source: Extracted from FCT’s 1Q12 financial results

For 1Q12, FCT managed to increase rents for leases renewed across all its malls by an average of 9.6% mainly driven by CWP and NP, which is higher compared to the 7.9% average rental increase achieved in the prior quarter. More specifically, revenue contribution by CWP and NP grew 41.4% and 5.4% respectively as shown in Figure 1. This is outstanding given the persistent uncertainty in the global economy and lackluster leasing activities for prime retail space in Orchard Road, in the last quarter of 2011. According to Colliers International, prime retail space in Orchard Road, after having endured eight consecutive quarters of price stagnation, slipped marginally from $38.50 per square feet (psf) to $38.30 psf in December 2011.

The impressive 41.4% increase in rents for CWP came as a result of the completion of addition and alteration works, allowing for new and more tenants at higher rental rates. According to FCT, while the renovation works for CWP will temporarily bring its occupancy rate down to around 90% for the first half of 2012, the second half will see occupancy rates climb and by December 2012, CWP is expected to be fully occupied. This will allow net property income of CWP to increase 22%.

As expected of a well-managed retail mall portfolio, the occupancy rates for FCT’s mall (excluding CWP) had maintained at 95% for the past six quarters. In its latest published figures as of 31 December 2011, FCT had registered an occupancy rate of 97.5% for its total portfolio, up from 95.1% in the prior quarter. Higher rents and yet higher occupancy rates explain in part the favouritism shown to FCT by research houses.

Positive View by Research Houses

Colliers International noted that retailers located in regional centres are more well-regarded mainly due to the latent demand stemming from high density living in the surrounding neighbourhood. According to Statistics Singapore September 2010 publication, which details geographic distribution of Singapore’s resident population, FCT’s malls are located in areas of high population density ranging from 150,000 to 300,000 persons per planning area. Furthermore, suburban malls today, are bigger and carry more brands, providing convenience at the doorsteps of many households, allowing them to capture the immediate demand in the residential estates.

More importantly, most of the new supply of retail malls coming online in 2012 is located far away from FCT’s ‘points’, offering them protection against the likes of The Star Performing Arts Centre at Vista Xchange, The Atrium@Orchard and the second phase of Marina Bay Link Mall.

Notably, OCBC Investment and OSK-DMG like FCT for its rental reversions, adherence to CWP refurbishment schedule and potential asset injection from its parent firm Frasers Centrepoint (FCP).

Stepping Into The Future

If the global economy experiences a downturn, rent reversions may moderate with larger tenants having a stronger bargaining chip. Furthermore, Table 1 shows that the remaining leases yet to be renewed this year cover a larger net leasable area (NLA) on a per lease basis. Nevertheless, FCT’s top and bottom lines are expected to improve with the likely increase in occupancy rates in its malls.

Table 1: Remaining leases yet to be renewed

Source: Extracted from FCT’s 1Q12 financial results

Going forward, with a well-connected ‘parent’ like FCP, it is conceivable that FCT’s portfolio will grow beyond the likes of Changi City Point and The Centrepoint – named under FCT’s growth strategy. One potential addition lies in the Watertown development located at Punggol Central. Without a crystal ball or connections to the top echelons of FCT, the guiding star leading the way to this inference is the name of its new mall – Waterway Point.