Frasers CentrePoint Trust

http://infopub.sgx.com/FileOpen/Investor...eID=275387

Page 31 - the roadmap for growth is clearly mapped out.

FCT share price currently below NAV of $1.77 - an major stumbling block for a typical accretive acquisition.

However, sentiments towards REIT sector appears to be on the mend so there remains hope for parent FCL to go further asset light.

(20-02-2014, 09:15 PM)greengiraffe Wrote: FCT share price currently below NAV of $1.77 - an major stumbling block for a typical accretive acquisition.

However, sentiments towards REIT sector appears to be on the mend so there remains hope for parent FCL to go further asset light.

The major determinants of whether an acquisition is yield accretive or not:
- cost of equity financing: this speaks to the NAV or aggregate cap rate of the reit
- cost of debt financing
- cost of asset to be acquired
- potential use of financial engineering

It is notable that FCT's 2 rounds of acquisition thus far have been yield accretive without use of financial engineering and without rights issues that require unitholders' attention/action. By using a combination of placement and debt financing and pricing the asset appropriately. One of the few (or only?) reits with this type of track record.

In the current (still) low interest rate environment, it may still be possible to continue with this type of track record even if the cost of equity is not so optimal. It will probably be imperative for FCL to keep it's reputation from the old F&N days, to sustain an asset light approach.

Dr Chew Tuan Chiong, Chief Executive Officer of FCAM said, “The proposed
acquisition is another testament to our strategy of investing in quality income-producing
assets. Bedok Point will be the fifth mall in our Singapore portfolio and this acquisition
will reinforce FCT’s position as a pure-play suburban retail mall Singapore REIT. With
this acquisition, the asset size of our portfolio is expected to grow to S$1.66 billion from
S$1.53 billion. In addition to the benefits from income diversification, a larger market
share of the suburban retail mall market and an enlarged tenant base, our unitholders
can expect to enjoy higher distribution per unit from this yield-accretive acquisition.”


Business in Bedok Point has been badly affected and before that I noticed that shopper traffic has already dropped since 2012. Its been also reported that back then it was already known that there will be a bedok mall at the point of acquisition. Any views on FCT acquisition track record? Does not seem good to me. Is there a danger of it doing "national service"to their sponsor?(Not vested)

Their pending acquisition of centerpoint does not look promising either.

Unfortunately FCL is currently taking alot of attention and potential retailers investment monies from FCT and FCOT. The fact of the matter is that if someone wanted to invest in Fraser, FCL would perhaps be the best of the three.

Just hope that FCT can keep up its track record. Not asking for much.

Vested.

(24-02-2014, 04:43 PM)nervesofsteel Wrote: Any views on FCT acquisition track record? Does not seem good to me. Is there a danger of it doing "national service"to their sponsor?(Not vested)

On the whole, FCT has been rather decent - survived thru GFC without rights, and thus far DPU has been increasing through the years with minimal destruction of unitholders value. So net net, on the whole i think FCT has done well. Some thoughts though:

1) Bedok Point is a bad buy - everyone could see that malls without direct MRT access are not ideal. Anchorpoint also suffers from the same problem. Subsequently I will come to understand the nature of Bedok does not help - it's a town with a dense network of neighbourhood shops which makes shopping at the mama shops rather convenient unlike some other towns. So from the POV of these 2 malls, one gets the impression that FCT is not perfect when it comes to acquisitions. I do not fancy them getting a good price for Changi City Point when the time comes either.

2) Nonetheless, the 2 crown jewels in FCT is Northpoint and Causeway Point where the rental uplifts are very strong. From the demographics and future plans in Woodlands, these 2 malls should continue to do very well in the future. The fact that the adjacent plot of land in Yishun is secured by FCL also ensures that no Bedok Mall vs Point will happen in Yishun so at least there's no cannibalism - whether it will be dynamic synergies is a matter for the future (and of cos the purchase price of Northpoint #2)

so my conclusion:
Retail REITs have a certain profile - more resilient during downturns (less a SARs like scenario) cos ultimately everyone needs to shop/eat - the relevance of a mall can be seen in Punggol during the by-election. Add to that the correlation of REITs performance to inflation and i think retail REITs are a decent inclusion in one's portfolio. Unfortunately i think the retail REITs all suffer from lack of bargaining power when it comes to acquisition of malls from their sponsors. I own both CMT and FCT but certainly wil not raise the stakes beyond a certain point.

(24-02-2014, 07:44 PM)AlphaQuant Wrote:

(24-02-2014, 04:43 PM)nervesofsteel Wrote: Any views on FCT acquisition track record? Does not seem good to me. Is there a danger of it doing "national service"to their sponsor?(Not vested)

On the whole, FCT has been rather decent - survived thru GFC without rights, and thus far DPU has been increasing through the years with minimal destruction of unitholders value. So net net, on the whole i think FCT has done well. Some thoughts though:

1) Bedok Point is a bad buy - everyone could see that malls without direct MRT access are not ideal. Anchorpoint also suffers from the same problem. Subsequently I will come to understand the nature of Bedok does not help - it's a town with a dense network of neighbourhood shops which makes shopping at the mama shops rather convenient unlike some other towns. So from the POV of these 2 malls, one gets the impression that FCT is not perfect when it comes to acquisitions. I do not fancy them getting a good price for Changi City Point when the time comes either.

2) Nonetheless, the 2 crown jewels in FCT is Northpoint and Causeway Point where the rental uplifts are very strong. From the demographics and future plans in Woodlands, these 2 malls should continue to do very well in the future. The fact that the adjacent plot of land in Yishun is secured by FCL also ensures that no Bedok Mall vs Point will happen in Yishun so at least there's no cannibalism - whether it will be dynamic synergies is a matter for the future (and of cos the purchase price of Northpoint #2)

so my conclusion:
Retail REITs have a certain profile - more resilient during downturns (less a SARs like scenario) cos ultimately everyone needs to shop/eat - the relevance of a mall can be seen in Punggol during the by-election. Add to that the correlation of REITs performance to inflation and i think retail REITs are a decent inclusion in one's portfolio. Unfortunately i think the retail REITs all suffer from lack of bargaining power when it comes to acquisition of malls from their sponsors. I own both CMT and FCT but certainly wil not raise the stakes beyond a certain point.

Thanks for your analysis. I find it good and rather objective. I am interested on how their future acquisitions (centerpoint mall,changi citypoint) will play out. I believe how good a reit is lies on whether the manager is able to purchase good quality assets at a good price since most reits purchase at least once a year.

(24-02-2014, 10:29 PM)nervesofsteel Wrote: I believe how good a reit is lies on whether the manager is able to purchase good quality assets at a good price since most reits purchase at least once a year.

FCT buys from FCL
CMT buys from CapMallAsia

All 4 are listed entities. If FCT or CMT buys at good prices, then FCL and CapMallAsia would have sold at bad prices. I find it hard to believe the latter (who are the parents and hence higher in the hierarchy) volunteering to sacrifice and upsetting their shareholders to benefit the former. I also think the manager of the REIT will have plenty to lose out in terms of promotions up the ladder of the parent if the bloke upsets too many heads on top. This is real life after all.

So my conclusion for REITs with a strong sponsor is that a unitholder probably can never hope for a purchase at a great price - a somewhat fair price is your best bet.

(24-02-2014, 11:27 PM)AlphaQuant Wrote:

(24-02-2014, 10:29 PM)nervesofsteel Wrote: I believe how good a reit is lies on whether the manager is able to purchase good quality assets at a good price since most reits purchase at least once a year.

FCT buys from FCL
CMT buys from CapMallAsia

All 4 are listed entities. If FCT or CMT buys at good prices, then FCL and CapMallAsia would have sold at bad prices. I find it hard to believe the latter (who are the parents and hence higher in the hierarchy) volunteering to sacrifice and upsetting their shareholders to benefit the former. I also think the manager of the REIT will have plenty to lose out in terms of promotions up the ladder of the parent if the bloke upsets too many heads on top. This is real life after all.

So my conclusion for REITs with a strong sponsor is that a unitholder probably can never hope for a purchase at a great price - a somewhat fair price is your best bet.

Very true. Though there is always the possibility of making highly attractive purchases from third party vendors. FCOT (managed by FCL) acquisition of a 50% stake in Caroline Chisholm Centre in 2012 is a good example. I don't recall FCT making any third party acquisitions till date.

(Not Vested)

(24-02-2014, 07:44 PM)AlphaQuant Wrote: 1) Bedok Point is a bad buy - everyone could see that malls without direct MRT access are not ideal. Anchorpoint also suffers from the same problem. Subsequently I will come to understand the nature of Bedok does not help - it's a town with a dense network of neighbourhood shops which makes shopping at the mama shops rather convenient unlike some other towns. So from the POV of these 2 malls, one gets the impression that FCT is not perfect when it comes to acquisitions.

Bedok Point

Forecast NPI for forecast period 2012: 7002K (from acquisition circular)
Actual NPI for 1st 4 full quarters after acquisition: 8060K (from quarterly results)
Actual NPI for last 4 quarters: 7350K (from quarterly results) probably mainly due to 39 renewals 16% lower than preceding rentals and 80% occupancy only as space is being outfitted for new tenants.
Whether this becomes a bad acquisition will depend on how well management repositions the mall as they have said they are now doing - introducing anchors and getting destination tenants.

Anchor Point

Forecast NPI for 2007: 1479K (from IPO prospectus)
Actual NPI for last 4 quarters: 4650K (from quarterly results) - there was a major AEI along the way.
Thought this was an outstanding inclusion in the original portfolio. Though it is not directly connected to an MRT station, value could still be extracted from it.

Quote:I do not fancy them getting a good price for Changi City Point when the time comes either.

A fair price would be a good price - are you feeling they will not even get this?