Frasers CentrePoint Trust

Prudence the key to FCT's stability

Its suburban malls strategy and low gearing cited for Reit's resilience
By lee meixian (Business Times)

[SINGAPORE] When speaking to the CEO of Frasers Centrepoint Trust's (FCT) manager Chew Tuan Chiong, one senses the caution and prudence with which he runs the suburban retail real estate investment trust (Reit).
Not surprisingly then, he is incredibly proud of the stability of his Reit, which has delivered higher gross revenue, net property income and distribution per unit every year since its listing in 2006 - a momentum unbroken even during the 2007-2008 global financial crisis.
Dr Chew attributed the Reit's resilience partly to its portfolio of wholly suburban malls.
"These malls cater mostly to residents in surrounding areas and their non-discretionary spending. They sell necessities - products like groceries, services like haircuts - things you need whether there's an economic boom or bust," he said.
Another factor that saw it through the credit crunch during the financial crisis was the low gearing that it has disciplined itself to maintain, he said.
As at end-March 2014, FCT's gearing level - or level of debt compared to its net assets - stood at 27.7 per cent. This is among the lowest for Singapore Reits, although it is expected to increase to 30.3 per cent after FCT's recent acquisition of Changi City Point, according to OCBC Investment Research. Still, this is well below the sector's average gearing of 33.4 per cent.
One key reason why the Reit is able to maintain a low gearing, admittedly, is the extensive asset enhancement initiatives (AEI) its malls have undergone, which raise their valuations each time they are spruced up at a rate that outpaces its increase in borrowings. Renovations at Causeway Point, completed in late 2012, created some $276 million in valuation gains for the Woodlands mall, for instance.
Borrowings-wise, some 94 per cent is borrowed at fixed rates or hedged through interest rate swaps, so that the Reit would be insulated from the effects of expected interest rate increases next year, at least for the short term.
"We maintain a very sound, slightly conservative capital structure, which has worked well for us. (That's why) investors feel that we are very secure," Dr Chew said.
FCT has also been prudent with its equity fund-raising, he added. "Since our initial public offering, we have gone to the markets only to raise equity for growth purposes, to buy new assets."
Its latest private placement of 88 million new units at $1.835 each - at a "very, very tight" 2.5 per cent discount to its average trading price a day before the placement announcement - was "taken up quite quickly, within an hour or two", backed by strong demand from Asian and European institutional investors. The $158.7 million was raised to part-finance the $305 million purchase of Changi City Point, its most recent injection into the Reit.
Acquisitions are another thing the Reit is very selective about. Up till now, all its assets have been sourced from its sponsor, Frasers Centrepoint. It can buy malls from third-party owners, but Dr Chew said it has not done so because "this usually involves paying higher valuations". Besides, mall assets in Singapore are quite scarce and usually very tightly held by their owners, he added.
Yet, there are still six malls in Frasers Centrepoint's portfolio that have not been injected into the Reit, the most prominent being The Centrepoint on Orchard Road.
Explaining why, Dr Chew said: "They are not ready for acquisition. Also, we do not have the right of first refusal for these six malls, but we can look to negotiate when we think they are ready.
"In the case of Centrepoint, it has not been injected partly because we have been focusing on suburban malls, which are the kind of assets investors love. I think there's a lot of further development potential for Centrepoint, so we'll wait and see how it evolves over time."
Another thing the Reit is careful about is its tenant mix - to the point that it will intervene if the mix isn't optimal. It ousted an anchor tenant, John Little, in September 2010 despite the fact that the departmental store was generating good revenue, because with Metro also in the mall, there wasn't room for another.
Causeway Point, which contributes almost half of the Reit's revenue and income stream, has so far enjoyed a monopoly in Woodlands and is expected to benefit from upcoming office buildings nearby and an MRT line linking Woodlands North station on the Thomson Line to a stop in Johor Baru.
The Reit's second biggest mall, Northpoint, may also soon be getting a new wing - bigger than its existing building - from an adjoining plot acquired by its sponsor and slated for a mixed development with a mall segment.
FCT also owns a 31.17 per cent stake in Bursa-listed Hektar Real Estate Investment, a retail Reit with five malls in Malaysia. Besides Malaysia, it has also evaluated Indonesia, Thailand, China and Australia as possible markets to acquire malls in.
But, exercising caution again, Dr Chew asked: "Do we understand their local consumption patterns? We have not been able to say for sure that any of the other places we looked at are attractive to us."

Source: OCBC MarketPulse

Frasers Centrepoint Trust: Boost from Changi City Point

Frasers Centrepoint Trust (FCT) reported 3QFY14 DPU of 3.022 S cents, up 6.0% YoY. This is largely in line with our expectation. Noteworthy in 3Q was the significant improvement in FCT’s portfolio occupancy to 98.5% from 96.8% in preceding quarter. We understand that Bedok Point’s occupancy rose to a strong 99.3% from 77.0% in Mar, after several new tenants commenced operations in the quarter. On the portfolio basis, positive rental reversion of 7.8% was also achieved, with only Bedok Point registering a mild 2.9% negative reversion. We maintain our view that Causeway Point and Northpoint will continue to underpin organic growth in the year ahead, while Changi City Point will provide further boost to FCT’s income. Maintain BUY on FCT with an unchanged fair value of S$2.08. (Kevin Tan)

http://www.businesstimes.com.sg/companie...u-falls-65

FCT's fourth-quarter DPU falls 6.5%
By
Kenneth Limkenlim@sph.com.sg@KennethLimBT
24 Oct5:50 AM
Singapore

FRASERS Centrepoint Trust (FCT) posted a 17.5 per cent increase in income available for distribution for its fiscal fourth quarter as it reaped contributions from the newly acquired Changi City Point mall.

The retail real estate investment trust (Reit) said income

I posted the following at the CMT thread with some follow through discussions by fellow buddies. Check it out if interested.

(23-01-2015, 01:08 PM)egghead Wrote: Compare CMT (FY2014) and FCT (FY Sep-2014) data:

1. FCT has higher DPU (11.187 cents versus 10.84 cents)
2. FCT has lower gearing (29.3% versus 33.8%)
3. FCT has higher interest cover (6.17x versus 4.5x)
4. FCT has lower cost of debt (2.508% versus 3.5%)
5. FCT has higher occupancy (98.9% versus 98.8%)

But looking at the prices today, CMT is $2.25 whereas FCT is $2.00. What is driving the preference for CMT

(07-07-2014, 09:26 PM)Art or Science Wrote: Prudence the key to FCT's stability

Its suburban malls strategy and low gearing cited for Reit's resilience
By lee meixian (Business Times)

[SINGAPORE] When speaking to the CEO of Frasers Centrepoint Trust's (FCT) manager Chew Tuan Chiong, one senses the caution and prudence with which he runs the suburban retail real estate investment trust (Reit).
Not surprisingly then, he is incredibly proud of the stability of his Reit, which has delivered higher gross revenue, net property income and distribution per unit every year since its listing in 2006 - a momentum unbroken even during the 2007-2008 global financial crisis.
Dr Chew attributed the Reit's resilience partly to its portfolio of wholly suburban malls.
"These malls cater mostly to residents in surrounding areas and their non-discretionary spending. They sell necessities - products like groceries, services like haircuts - things you need whether there's an economic boom or bust," he said.
Another factor that saw it through the credit crunch during the financial crisis was the low gearing that it has disciplined itself to maintain, he said.
As at end-March 2014, FCT's gearing level - or level of debt compared to its net assets - stood at 27.7 per cent. This is among the lowest for Singapore Reits, although it is expected to increase to 30.3 per cent after FCT's recent acquisition of Changi City Point, according to OCBC Investment Research. Still, this is well below the sector's average gearing of 33.4 per cent.
One key reason why the Reit is able to maintain a low gearing, admittedly, is the extensive asset enhancement initiatives (AEI) its malls have undergone, which raise their valuations each time they are spruced up at a rate that outpaces its increase in borrowings. Renovations at Causeway Point, completed in late 2012, created some $276 million in valuation gains for the Woodlands mall, for instance.
Borrowings-wise, some 94 per cent is borrowed at fixed rates or hedged through interest rate swaps, so that the Reit would be insulated from the effects of expected interest rate increases next year, at least for the short term.
"We maintain a very sound, slightly conservative capital structure, which has worked well for us. (That's why) investors feel that we are very secure," Dr Chew said.
FCT has also been prudent with its equity fund-raising, he added. "Since our initial public offering, we have gone to the markets only to raise equity for growth purposes, to buy new assets."
Its latest private placement of 88 million new units at $1.835 each - at a "very, very tight" 2.5 per cent discount to its average trading price a day before the placement announcement - was "taken up quite quickly, within an hour or two", backed by strong demand from Asian and European institutional investors. The $158.7 million was raised to part-finance the $305 million purchase of Changi City Point, its most recent injection into the Reit.
Acquisitions are another thing the Reit is very selective about. Up till now, all its assets have been sourced from its sponsor, Frasers Centrepoint. It can buy malls from third-party owners, but Dr Chew said it has not done so because "this usually involves paying higher valuations". Besides, mall assets in Singapore are quite scarce and usually very tightly held by their owners, he added.
Yet, there are still six malls in Frasers Centrepoint's portfolio that have not been injected into the Reit, the most prominent being The Centrepoint on Orchard Road.
Explaining why, Dr Chew said: "They are not ready for acquisition. Also, we do not have the right of first refusal for these six malls, but we can look to negotiate when we think they are ready.
"In the case of Centrepoint, it has not been injected partly because we have been focusing on suburban malls, which are the kind of assets investors love. I think there's a lot of further development potential for Centrepoint, so we'll wait and see how it evolves over time."
Another thing the Reit is careful about is its tenant mix - to the point that it will intervene if the mix isn't optimal. It ousted an anchor tenant, John Little, in September 2010 despite the fact that the departmental store was generating good revenue, because with Metro also in the mall, there wasn't room for another.
Causeway Point, which contributes almost half of the Reit's revenue and income stream, has so far enjoyed a monopoly in Woodlands and is expected to benefit from upcoming office buildings nearby and an MRT line linking Woodlands North station on the Thomson Line to a stop in Johor Baru.
The Reit's second biggest mall, Northpoint, may also soon be getting a new wing - bigger than its existing building - from an adjoining plot acquired by its sponsor and slated for a mixed development with a mall segment.
FCT also owns a 31.17 per cent stake in Bursa-listed Hektar Real Estate Investment, a retail Reit with five malls in Malaysia. Besides Malaysia, it has also evaluated Indonesia, Thailand, China and Australia as possible markets to acquire malls in.
But, exercising caution again, Dr Chew asked: "Do we understand their local consumption patterns? We have not been able to say for sure that any of the other places we looked at are attractive to us."

sounds like a good interview, but a few observations:

this interview probably led people to believe that suburban malls are indeed more stable than prime area malls with most visitors are coming from nearby residents who only buy necessities...

however if you look at the tenant composition (by % of rents):
-the second largest is actually fashion (discretionary) with 22% of rents
-in my opinion, only F&B, household, supermarket and healthcare are non-discretionary and they only account 50% of rents, leaving the other half from discretionary items such as fashion, department store, leisure, sports apparels, and beauty


also if you look at their occupancy rate, it is often not stable:
1) back in 1Q2014, bedok point occupancy rate dropped from 97% to 80% because of "outgoing tenants"
2) back in 2Q2013, similar thing happened to YewTee point and Anchorpoint with occ rate figure dropped by 5.1% and 5.6% respectively (absolute term)
3) right now they say Northpoint, Changi City Point and Bedok Point are also undergoing transitional vacancy (regardless of the definition, this means reduced income for a few months, for REIT that pays DPU every quarter, this can be painful)
4) visitor traffic has fallen for the past 6 quarters


so I think what Dr Chew (the CEO) said indeed sounded very appealing, but without getting into the details, this could be very misleading... after all, every investor should do their own homework....

btw Dr Chew doesn't seem to have real estate background... prior to his appointment as the CEO in 2010, he was with Science Center Singapore from 1995-2010.

Not vested.

(18-03-2015, 11:43 AM)zerobeta Wrote: 1) back in 1Q2014, bedok point occupancy rate dropped from 97% to 80% because of "outgoing tenants"

Not vested.

Yup. Bedok Point was severely affected by Bedok Mall.

But I think CCP and NP will continue to perform decently due to the government's initiative to turn the north into a regional hub.

Thanks for the observations.

(18-03-2015, 11:43 AM)zerobeta Wrote: this interview probably led people to believe that suburban malls are indeed more stable than prime area malls with most visitors are coming from nearby residents who only buy necessities...

however if you look at the tenant composition (by % of rents):
-the second largest is actually fashion (discretionary) with 22% of rents
-in my opinion, only F&B, household, supermarket and healthcare are non-discretionary and they only account 50% of rents, leaving the other half from discretionary items such as fashion, department store, leisure, sports apparels, and beauty

You're right not to take the rhetorics at face value. However do take a look at how they performed during a crisis eg. GFC of 2008/09 to see how the thesis really bears out.

Quote:also if you look at their occupancy rate, it is often not stable:
1) back in 1Q2014, bedok point occupancy rate dropped from 97% to 80% because of "outgoing tenants"
2) back in 2Q2013, similar thing happened to YewTee point and Anchorpoint with occ rate figure dropped by 5.1% and 5.6% respectively (absolute term)

Do check if the drop is temporary and due to repositioning, AEI, etc or prolonged. Also check what % these malls contribute to total NPI.

Quote:3) right now they say Northpoint, Changi City Point and Bedok Point are also undergoing transitional vacancy (regardless of the definition, this means reduced income for a few months, for REIT that pays DPU every quarter, this can be painful)

Do write to the IR manager for a clarification. Do not assume. The definition can matter.

Quote:btw Dr Chew doesn't seem to have real estate background... prior to his appointment as the CEO in 2010, he was with Science Center Singapore from 1995-2010.

Do check during his tenure 2010-2015 how did dpu and unit price perform, in spite of his lack of retail experience.

(18-03-2015, 11:43 AM)zerobeta Wrote: sounds like a good interview, but a few observations:

this interview probably led people to believe that suburban malls are indeed more stable than prime area malls with most visitors are coming from nearby residents who only buy necessities...

however if you look at the tenant composition (by % of rents):
-the second largest is actually fashion (discretionary) with 22% of rents
-in my opinion, only F&B, household, supermarket and healthcare are non-discretionary and they only account 50% of rents, leaving the other half from discretionary items such as fashion, department store, leisure, sports apparels, and beauty


also if you look at their occupancy rate, it is often not stable:
1) back in 1Q2014, bedok point occupancy rate dropped from 97% to 80% because of "outgoing tenants"
2) back in 2Q2013, similar thing happened to YewTee point and Anchorpoint with occ rate figure dropped by 5.1% and 5.6% respectively (absolute term)
3) right now they say Northpoint, Changi City Point and Bedok Point are also undergoing transitional vacancy (regardless of the definition, this means reduced income for a few months, for REIT that pays DPU every quarter, this can be painful)
4) visitor traffic has fallen for the past 6 quarters


so I think what Dr Chew (the CEO) said indeed sounded very appealing, but without getting into the details, this could be very misleading... after all, every investor should do their own homework....

btw Dr Chew doesn't seem to have real estate background... prior to his appointment as the CEO in 2010, he was with Science Center Singapore from 1995-2010.

Not vested.

Further observations,

1. You can see that Bedok Pt, Yew Tee Pt and Anchor Pt are the smallest malls in the portfolio, total approximately 15% of total profit. The impact from these 3 malls is very little to the overall portfolio.

2. If you checked their latest presentation, the occupancy rate for Bedok Pt moved up to 90%, Yew Tee Pt stays around 96%, and Anchor Pt moved up to 98.8%.

3. The DPU stays rather stable over the past quarters. In fact, if you check on the yearly payout, it is actually on an increasing trend.

4. Shopper traffic moved back up to 21.7M for the last quarter, excluding Changi City Pt.

For your reference, here is the latest presentation.

http://infopub.sgx.com/FileOpen/FCT_Inve...eID=337195

There are more exciting catalyst if we just look at both Northpoint and Causewaypoint

@swkaoo

thanks for the suggestions...

(18-03-2015, 10:03 PM)swakoo Wrote: You're right not to take the rhetorics at face value. However do take a look at how they performed during a crisis eg. GFC of 2008/09 to see how the thesis really bears out.

adjusted for rights issues in 1Q2009, Capitamall Trust also has unbroken annual increase in DPU since listing in 2002 and they have malls everywhere in Singapore... so saying FCT could survive crises because of their defensive suburban malls can be misleading (confirmation bias)... FCT could survive for different reason, perhaps low gearing?

(18-03-2015, 10:03 PM)swakoo Wrote: Do check if the drop is temporary and due to repositioning, AEI, etc or prolonged. Also check what % these malls contribute to total NPI.

of course I have checked... the drop was temporary, i.e. 2 quarters for Bedok point and 1-3 quarters for others, but as I've said, even temporary can be painful because REITs pay dividend every quarters... in regards to % contribution to NOI, it could be small or it could be huge, it doesn't matter because my point here is to show that their occupancy rate is in fact not protected from external or economics factors, as opposed to what the management has long claimed.... a lot of sell side analysts have also pointed out about the defensive nature of their properties too which show how misleading the investors can be led to believe...

(18-03-2015, 10:03 PM)swakoo Wrote: Do write to the IR manager for a clarification. Do not assume. The definition can matter.

I was gonna ask this to the IR but decided not to do so after learning what happened to bedok point and other properties in the past, i.e. old tenants left, new tenants came in, but took some time because they needed to renovate ("fitting out" as the management put it) or as in the case of YewTee Point, the lease expired and the management was in process of "evaluating prospective tenants"....
so "transitional vacancy" can mean any of these things which means the definition doesn't matter because it clearly shows some of their shops in fact aren't stable and can be vacant for some time, and again, this is despite the claim that their shops are defensive in nature (the definition only matters when it's related to something non recurring such as accidents) also if you compare with Capitamall Trust and Mapleetree Trust, their occupancy rate is often close to 100% (except during AEI), and much much more stable than the "resilient-suburban" malls of FCT...

you can check historical occupancy rate of Capitamall Trust in this link (page 30):
http://capitamall.listedcompany.com/news...Slides.pdf

(18-03-2015, 10:03 PM)swakoo Wrote: Do check during his tenure 2010-2015 how did dpu and unit price perform, in spite of his lack of retail experience.

Yes, FCT has done very well since he joined, kudos to him and the management team.... but i am more bearish this time because the growth in the past was led by AEI in 3 malls, now only Bedok and Changi City Point that haven't gone through AEI but these are new malls so unlikely there will be any major value-enhancing AEI in the short to medium term... during the period of which Singapore retail isn't also very exciting (as already reflected by flattish rents and falling visitor traffic and occupancy rate) which will only exacerbate the situation...

i'm just playing as a devil's advocate...