Frasers CentrePoint Trust

[swakoo]

zerobeta, thanks for digging into the suggestions.

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?

CMT has the same profile as FCT of having mostly well located suburban malls though the proportion is less. They use the same thesis of catering more to spending on captive necessities than discretionaries. So it's dpu doing well during crises (even SARS 2003) is supportive of the thesis.

FCT's dpu for FY07, 08, 09, 10 is 6.55, 7.29, 7.51, 8.08 cents respectively. So it not only survived the GFC of 08/09 but it's dpu actually grew during the crisis in spite of parts of Northpoint being shut down for AEI then. So call it what you want - confirmation bias, low gearing, etc - the results speak for itself.

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...

It is not disputed that the malls are not protected from external or economic factors, especially the ones not adjacent to MRT stations like Bedok Point or Anchorpoint. Management have said sometimes they needed to reposition some of the malls and involves some down time as they switch tenants. Fortunately the contribution of the more vulnerable malls to NPI is very small. As for the sell side analysts, do take what they say with a pinch of salt...

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

There was an audio conference with analysts after last quarter's results. I listened in and learned that "transitional vacancy" refers mostly to space that was vacant during the reporting period but has already been committed to ie has been taken up.

Do note that some of CMT's malls also do have vacancy drops eg. IMM during repositioning (2014 - 96%), Funan repositioning (2014 - 98%). This is the same phenomenon as with FCT.

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...

Your original point was the lack of retail experience of the CEO. To be fair to him, he has done very well in spite of his background. And it is not fair to imply that he will be a negative factor to the reit's performance due to this. That there are challenges facing the retail industry this year is a separate point.

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

Which you should, that's what this forum is for...

[AQ.]

I'm pretty +ve on FCT going fwd.

While there are definite headwinds, esp with the restructuring pains hitting the higher yielding F&B/fashion tenants, I think there are a couple of strong tailwinds as well.

During the recent CMT quarterly results, the CEO remarked that the retail landscape is undergoing tremendous changes and the future looks likely to be dominated by the mega-malls. Retailers are more likely to consolidate given the limited labor supply, and focus their firepower on the ones with the highest footfall and spending power, even willing to pay a higher rental premium for such locations.

Looking at the main contributors for FCT, Northpoint, Causeway Pt and CCP are all mega-malls. Moreover, all 3 are likely to get a boost from redevelopment plans funded by external capital i.e. FCT pays nothing to get benefits.

FCT gets a boost from the Northpoint city plans with completion 2018 - it's much synergistic for 2 Frasers malls to adjacent to each other rather than 2 rivals cannibalising each other.

Causeway Pt prob gets a boost from the woodlands redevelopment plans with Woodlands MRT serving as the interchange between NS+Thomson lines in 2019.

CCP sits on top of the future Expo station of the downtown line, to be completed in 2017 or so.

So looking out 3yrs, it's quite likely to see NPI and valuation rise decently simply due to the connectivity dividends, all funded by external parties without any capital outlay from FCT (although FCT is likely to acquire the future Northpoint mall eventually).

Management has indicated no plans for acquisitions for the next 2 yrs until Northpoint City is completed i.e. no equity dilution, so DPU growth visibility for FCT is decent.

[zerobeta]

Thanks Swakoo for the very insightful counter argument, I have some follow up questions, if you dont mind...

CMT has the same profile as FCT of having mostly well located suburban malls though the proportion is less. They use the same thesis of catering more to spending on captive necessities than discretionaries.

so the type of shops inside a mall is less of an influence to the stability of the income than the location of the mall? I mean during economic downturn or challenging retail environments like today, the discretionary shops in the suburban area will likely get hit just as hard as the discretionary shops in the urban area, won't they?

Management have said sometimes they needed to reposition some of the malls and involves some down time as they switch tenants.

There was an audio conference with analysts after last quarter's results. I listened in and learned that "transitional vacancy" refers mostly to space that was vacant during the reporting period but has already been committed to ie has been taken up.

this down time, I understand it affects all properties, but it seems to have a bigger impact on FCT? because if you look at quarterly occupancy rate from other malls, the dip of the occupancy rate (as well as its length) during transition is not as severe and frequent as FCT.

[Image: occ_rate.jpg]

Do note that some of CMT's malls also do have vacancy drops eg. IMM during repositioning (2014 - 96%), Funan repositioning (2014 - 98%). This is the same phenomenon as with FCT.

isn't according to the management, this is due to AEI not re-positioning? also the dip is not that much and almost negligible
to quote the management, "Lower occupancy rates (IMM) were mainly due to asset enhancement works (AEI)."

[zerobeta]

I'm pretty +ve on FCT going fwd.

While there are definite headwinds, esp with the restructuring pains hitting the higher yielding F&B/fashion tenants, I think there are a couple of strong tailwinds as well.

During the recent CMT quarterly results, the CEO remarked that the retail landscape is undergoing tremendous changes and the future looks likely to be dominated by the mega-malls. Retailers are more likely to consolidate given the limited labor supply, and focus their firepower on the ones with the highest footfall and spending power, even willing to pay a higher rental premium for such locations.

Looking at the main contributors for FCT, Northpoint, Causeway Pt and CCP are all mega-malls. Moreover, all 3 are likely to get a boost from redevelopment plans funded by external capital i.e. FCT pays nothing to get benefits.

FCT gets a boost from the Northpoint city plans with completion 2018 - it's much synergistic for 2 Frasers malls to adjacent to each other rather than 2 rivals cannibalising each other.

Causeway Pt prob gets a boost from the woodlands redevelopment plans with Woodlands MRT serving as the interchange between NS+Thomson lines in 2019.

CCP sits on top of the future Expo station of the downtown line, to be completed in 2017 or so.

So looking out 3yrs, it's quite likely to see NPI and valuation rise decently simply due to the connectivity dividends, all funded by external parties without any capital outlay from FCT (although FCT is likely to acquire the future Northpoint mall eventually).

Management has indicated no plans for acquisitions for the next 2 yrs until Northpoint City is completed i.e. no equity dilution, so DPU growth visibility for FCT is decent.

Thank you! i agree with you, this is a compelling story.

[swakoo]

CMT has the same profile as FCT of having mostly well located suburban malls though the proportion is less. They use the same thesis of catering more to spending on captive necessities than discretionaries.

so the type of shops inside a mall is less of an influence to the stability of the income than the location of the mall? I mean during economic downturn or challenging retail environments like today, the discretionary shops in the suburban area will likely get hit just as hard as the discretionary shops in the urban area, won't they?

The distinction is between well located suburban malls vs urban malls. Eg well located suburban malls could mean adjacent to MRT station and bus terminal. Foot fall is high because working folks could be catching a bus to the bus terminal then switching to MRT to go to work. Reverse when they are going home. Chances are they will do their shopping at the adjacent mall as it is convenient. Especially for necessities but could apply to discretionaries as well. During an economic downturn, discretionaries will be hit but could be hit less at well located suburban malls due to the convenience factor.

Management have said sometimes they needed to reposition some of the malls and involves some down time as they switch tenants.

There was an audio conference with analysts after last quarter's results. I listened in and learned that "transitional vacancy" refers mostly to space that was vacant during the reporting period but has already been committed to ie has been taken up.

this down time, I understand it affects all properties, but it seems to have a bigger impact on FCT? because if you look at quarterly occupancy rate from other malls, the dip of the occupancy rate (as well as its length) during transition is not as severe and frequent as FCT.

[Image: occ_rate.jpg]

Bear in mind that CMT NLA is approximately 4 times that of FCT's. So any downtime in occupancy due to AEI, repositioning, etc will be more pronounced for FCT than CMT in terms of % of overall occupancy. That is the benefit of size. But it cuts both ways as the benefit from any AEI growth is also more pronounced for FCT than CMT.

Do note that some of CMT's malls also do have vacancy drops eg. IMM during repositioning (2014 - 96%), Funan repositioning (2014 - 98%). This is the same phenomenon as with FCT.

isn't according to the management, this is due to AEI not re-positioning?
to quote the management, "Lower occupancy rates (IMM) were mainly due to asset enhancement works (AEI)."

With the recent opening of Jem and Westgate adjacent to JE MRT, IMM was under threat as it is in the vicinity. CMT had the foresight to realise this and to reposition IMM as a very big factory outlet mall. In the process of doing so, there was some AEI to reconfigure the space to suit the type of tenants they want to attract and recruit. So in this particular case, the goal was repositioning and some AEI had to be done to get there.

[zerobeta]

During an economic downturn, discretionaries will be hit but could be hit less at well located suburban malls due to the convenience factor.

I actually think during downturn, the malls at the suburban area will be less affected because it's less affected by the volatility from tourism, i.e. a very convenient mall in the Orchard area will likely have much more traffic during good times than the suburban area because it's boosted by the influx of tourists, but when you take the tourists factor away due to whatever reasons (economic downturn, currency, airline scare, etc.), it will also see larger drop in visitor traffic and tenant sales than those in suburban area... i.e. it's less stable....

but after reading your second point which is:

Bear in mind that CMT NLA is approximately 4 times that of FCT's. So any downtime in occupancy due to AEI, repositioning, etc will be more pronounced for FCT than CMT in terms of % of overall occupancy. That is the benefit of size. But it cuts both ways as the benefit from any AEI growth is also more pronounced for FCT than CMT"

I can understand why the occupancy rate of FCT is less stable than CMT...

so I think ultimately, the suburban area is indeed more stable than the prime area BUT not for the reason that it caters for discretionary spending, instead for the reason that it's less affected by the volatility of the visitors (i.e. only nearby residents will go to suburban area, meanwhile in prime area, non-residents, residents, and tourists will all go there)... so when the CEO said "These malls cater mostly to residents in surrounding areas and their non-discretionary spending...", he was half right, the first half of the sentence was spot on, but not the second half...

[zerobeta]

Hi... does anyone know the rent mechanism of their malls?

Thanks!

[kayhian]

Frasers Centrepoint Trust's Q2 payout rises 2.9% on higher income

Published on Apr 22, 2015 8:57 PM

By Rennie Whang

SINGAPORE - The addition of Changi City Point to the portfolio of Frasers Centrepoint Trust (FCT) from June 2014 boosted earnings for the second quarter, the trust's manager announced yesterday.

Distributable income of FCT rose 14.1 per cent year on year to $27.2 million for the quarter, on the back of a 15.9 per cent rise in gross revenue to $47.5 million.

This was attributed to the addition of Changi City Point and organic growth from other malls in the portfolio from step-up rents and positive rental reversions, its manager said.

Portfolio occupancy improved to 97.1 per cent at March 31, higher than 96.8 per cent a year back.

- See more at: http://www.straitstimes.com/news/busines...3QdRm.dpuf

[palantir]

Will Bedok Point be converted to F&B and Enrichment Centre so as to have a niche area? The traffic is quite pathetic as compared to Bedok Mall

[kayhian]

Will Bedok Point be converted to F&B and Enrichment Centre so as to have a niche area? The traffic is quite pathetic as compared to Bedok Mall

Bedok Point enjoy great success as a F&B and Enrichment Centre. It would be silly to compete with Bedok Mall as a pure neighbourhood shopping mall.