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My Personal Analysis of Frasers Centrepoint Trust

Portfolio

Frasers Centrepoint Trust has 6 suburban malls in its portfolio. They are Causeway Point, North Point, Changi City Point, Bedok Point, Yew Tee Point and Anchor Point.

Frasers Centrepoint Trust also holds 31.17% of the units in Hektar Real Estate Investment Trust (“H-REIT”). H-REIT is a retail-focused REIT in Malaysia comprising of Subang Parade in Selangor, Mahkota Parade in Melaka, Wetex Parade and Classic Hotel in Muar, Johor, Central Square in Sungai Petani and Landmark Central in Kulim, both located in Kedah.

Occupancy

As of 1st Quarter 2017, the overall average occupancy of its suburban malls is 91.3%.

The following is the breakdown

  1. Causeway Point – 99.7%
  2. North Point – 81.9%
  3. Changi City Point – 85.9%
  4. Bedok Point – 82.9%
  5. Yew Tee Point – 96.2%
  6. Anchor Point – 95.3%

At a glance, we can see that Causeway Point has the highest occupancy. North Point, Changi City Point and Bedok Point seems to be performing below par in terms of occupancy. As I frequent Changi City Point often for meals, I do notice many vacant shop spaces and the low occupancy.

Financial Summary

The 1st Quarter 2017 results for Frasers Centrepoint Trust is not that fantastic. Looking at the financial figures, Gross Revenue, Net Property Income and Distributable Income fell across the board. Frasers Centrepoint Trust attributed the fell in gross revenue to lower income contribution from North Point due to asset enhancement works.

However, it puzzles me how Frasers Centrepoint Trust manages to increase its Distribution Per Unit (DPU) even though income available for distribution was lower. My conclusion was Frasers Centrepoint managed to reduce its property expenses by 8.1% as indicated in its presentation slides.

It is also worthy to note that Frasers Centrepoint Trust achieved 10 consecutive years of steady DPU growth.

1Q2017
(S$’000)
1Q2016
(S$’000)
Change
Gross Revenue 44,075 47,075 (6.4)%
Net Property Income 31,635 33,544 (5.7)%
Distributable Income 27,650 27,711 (0.2)%
Distribution Per Unit (“DPU”) (cents) 2.89 2.87 0.7%

Debt

I am surprise by the low gearing ratio Frasers Centrepoint Trust has. As of 31st December 2016, gearing ratio stood at a level of 29.7% which consider low. SPH REIT has a gearing ratio of 25.7%. (My Personal Analysis of SPH REIT)

Management

Dr. Tuan Chiong Chew serves as the Chief Executive Officer of Frasers Centrepoint Asset Management Ltd., the manager of Frasers Centrepoint Trust. He is currently also the Non-Executive Director of Hektar Asset Management Sdn Bhd, the Manager of Hektar Real Estate Investment Trust since May 5, 2010.

Mr Philip Eng Heng Nee serves as the Non-Executive Chairman and independent director of Frasers Centrepoint Asset Management. At the same time, he also holds directorship in several companies, including Ezra Holdings, mDR and The Hour Glass. Did someone just mention Ezra? (Note: Ezra has recently filed for Chapter 11 bankruptcy in the US).

It is noteworthy to note that Mr Philip Eng Heng Nee was appointed as Singapore’s Non-resident Ambassador to the Hellenic Republic (Greece) since October 2006, and was Singapore’s Non-resident High Commissioner to the Federal Republic of Nigeria from July 2000 to December 2006.

Overall, the management is decent.

Current Valuation

Based on FY16 annualized distribution of 11.764 cents and current price of $2.11, the dividend yield is 5.58%.

The current dividend yield is slightly lower than CapitaMall Trust dividend yield of 5.86% (My Personal Analysis of Capitaland Mall Trust). The dividend yield is also lower than Starhill Global REIT offers a dividend yield of 7% at current price of S$0.74 and annualized dividend of 5.18 cents (My Personal Analysis of Starhill Global REIT).

I noticed Frasers Centrepoint Trust when the stock price fell to a low of $1.97 on 9th March 2017. At the stock price of $1.97, the dividend yield will be 5.97% which is deemed attractive to me.

The Net Asset Value (“NAV”) as of 31st December 2016 is $1.93. Thus, Frasers Centrepoint Trust is currently trading above its NAV.

Strength and Catalyst

1. Northpoint Asset Enhancement Initiative (AEI)

The enhancement is expected to be completed in September 2017. There will be links between Northpoint and Northpoint City where it indirectly connects the bus interchange which possibly can increase more shopper traffic to Northpoint.

2. Causeway Point is Largest Contributor

Causeway Point being Frasers Centrepoint Trust’s largest asset makes up 52.8% of its Net Property Income. Shopper traffic should not be an issue as I remember this is everyone’s favorite mall in the Woodlands area. Causeway Point is well located beside Woodlands MRT station.

3.Track Record of 10 Years of Consecutive DPU Growth

There is good track record of 10 years of consecutive DPU growth. Reputation is the strength but it is still a fact the REIT is also facing current headwinds.

4. Good Management

Frasers Centrepoint Trust was named the Runner-Up winner of the Most Transparent Company Award (REITs and Business Trusts Category) in the SIAS Investors’ Choice Awards 2016 for its outstanding efforts in Disclosure and Transparency standards. It all boils down to a good management.

Weakness

1. Under Performance of North Point, Changi City Point, Bedok Point

Changi City Point only draws crowd during the weekdays. In evenings and at weekends, the mall is less crowded. This is due to the nature Changi City Point is located in Changi Business Park whereby surrounding it is all offices. The nearest neighbourhood estate is Simei and Tanah Merah.

Shopper traffic at Bedok Point is poor due to the fact that it located near Bedok Mall (owned by CapitaMall) which is a big threat as Bedok Mall is linked to the MRT station and bus interchange. Having visited Bedok Point last few months, I noticed it is mainly occupied by a few eateries and an electronics retail store. The more reputable brands being Starbucks and Harvey Norman.

2. Decline of suburban rents quickened

In current headwinds, the pace of decline of suburban rents quickened, from 1 per cent quarter-on-quarter in the first quarter to 2 per cent in the fourth quarter.

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