Daniel Lee

Jul 245 min read

Fraser Centrepoint Trust V.S. CapitaLand Integrated Commercial Trust

In this article, we’ll be doing a 1-vs-1 comparison between two of Singapore’s poster children in the category of retail REITs – Frasers Centrepoint Trust (FCT) & CapitaLand Integrated Commercial Trust.

I will be comparing these two REITs based on the following criteria and coming out with a conclusion based on the assumption that I can only invest in either one of the REITs without any consideration of valuation:

Type and Location of Underlying Property Allocation
Occupancy Rate & Weighted Average Lease Expiry (WALE)
Distribution Behaviour and Breakdown
Balance Sheet Health

If you are interested in a more in-depth analysis of either of the REITs, you can assess my independent analysis reports on my telegram channel:

*Join the channel → click on the channel name → under files → download the report you want!

The article is best viewed on a desktop. Without further ado let’s get started.

1. Type and Location of Underlying Property Allocation

Frasers Centrepoint Trust

Frasers Centrepoint Trust is a Retail REIT that focuses solely on Singapore’s suburban shopping malls. While they may have foreign exposure via subsidiaries or joint ventures, those allocations are either insignificant to the overall performances of the REIT or have since been divested.

Apart from Singapore Sub-urban retail properties, the REIT does not hold any other types of property which makes it one of the only pure Singapore Retail Property plays as most of the other retail REITs listed in the SGX are often diversified across other countries or properties.

Capitaland Integrated Com Trust

Capitaland Integrated Commercial Trust is a diversified REIT that invests mainly in offices and retail properties in Singapore. While the majority of the properties that CICT owns are located in Singapore, the REIT has been expanding overseas in the last few years.

Winner: CICT

For the metrics of underlying properties, I would prefer CICT over FCT given its diversified nature across property types. However, I would pay close attention to their expansion strategy as I am not a huge fan of overseas commercial property given the unnecessary foreign exchange risk that is associated with such moves.

2. Occupancy Rate & WALE

Frasers Centrepoint Trust

Frasers Centrepoint Trust’s occupancy rate has been resilient and is operating near 100% occupancy rate based on the latest annual report figures.

Their weighted lease expiry has also experienced an improvement over the years. While the low WALE figure may be a cause of concern for some, I do not think investors need to be too worried about it given the defensiveness of Singapore’s retail properties.

Capitaland Integrated Com Trust

Capitaland Integrated Commercial Trust's occupancy rate has improved significantly over the years as a result of the recovery in the office occupancy rate. Its retail and integrated development properties have always exhibited resilient occupancy behaviour.

The weighted average lease expiry of CICT has been decent, largely thanks to the higher WALE of office and integrated properties helping to bring up the lower WALE nature of retail properties.

Winner: FCT

For the metrics of property resiliency, I would prefer FCT over CICT as while the overall WALE is lower, the defensive nature of Singapore retail properties and hence that of FCT is much preferred over a higher economic cycle sensitivity of CICT.

In fact, in the case of FCT, the lower WALE can be viewed as a favourable factor as it provides the manager more opportunities to initiate rental reversion when the tenancy agreement is up.

3. Distribution Behaviour & Breakdown

Frasers Centrepoint Trust

Despite the resiliency in underlying property performances, the distribution of FCT has experienced a dip in 2023 due to the impact of higher borrowing costs and loss of income from the ongoing asset enhancement initiatives. Investors should also pay attention to the management’s decision to pay more management fees in units.

Capitaland Integrated Com Trust

As a result of the recovery of the office properties, the distribution from operations has improved over the years. This came despite the higher interest rate environment which had caused borrowing costs to increase drastically and distribution to fall among the REITs listed in SGX.

Winner: CICT

For the metrics of distribution behaviour and breakdown, I would prefer CICT over FCT given its commendable performance over the past few years, largely contributed by the recovery of their office properties.

Unlike FCT which is already operating near full occupancy, CICT still have some room for organic growth from a higher occupancy rate though investors should take into consideration that the higher potential higher DPU organic growth comes with a higher risk of a lower occupancy rate in an event where the economy slows.

4. Balance Sheet Health

Frasers Centrepoint Trust

The financial health of Fraser Centrepoint Trust has deteriorated largely due to the higher interest rate environment which resulted in a higher average cost of debt and lower interest coverage ratio.

Capitaland Integrated Com Trust

The financial health of Capitaland Integrated Commercial Trust has deteriorated largely due to the higher interest rate environment which resulted in a higher average cost of debt and lower interest coverage ratio.

Winner: Tie

For the metrics of financial health, I would say that both FCT and CICT are comparatively healthy. While the gearing ratio is nearing the 40% limit that I am comfortable with, both management have acknowledged the deterioration of the financial health and have since taken action to manage it.

Overall Winner: CICT

If I could only invest in either FCT or CICT, I would choose Capitaland Integrated Commercial Trust as they are more diversified than FCT (in terms of types of properties) and have a higher potential for organic DPU growth as the occupancy rate improves.

That being said, I’d pay close attention to the health of CICT and how they will navigate the portfolio in the future with their intention to expand overseas as unlike Singapore properties, investing in off-shore commercial properties carries a much higher risk.

All things considered, when designing a REIT portfolio, things aint as simple as choosing one REIT over another, investors need to understand how each REIT will perform and contribute at a portfolio level to determine whether a REIT is investible and if so what should be the ideal allocation on a portfolio level.

I’ve written more extensively on my REIT investment methodology and how I go about designing, implementing and managing a profitable REIT portfolio for myself which you can grab a copy of for free here: