Wednesday, January 13, 2016

Journey To Retirement Part 16 -- Frasers Centrepoint Trust

The 16th part of my investment portfolio in which objective is to create wealth to retire.

Stock : Frasers Centrepoint Trust
Frasers Centrepoint Trust (Frasers Cpt Trust, FCT) is another retail Reits apart from CapitaMall Trust that I all along wanted to invest in.  With the restructuring of my investment portfolio last year (freeing up capital after 2 divestments so that I could dedicate a portion of it solely for this in the long run) and coupled with the selling down in global market start of this year, I managed to pick up a small portion of it at the price of $1.80.  

FCT has assets in suburban area (Causeway Point, Northpoint, Changi City Point, Bedok Point, YewTee Point and Anchorpoint).  These suburban malls typically consists of anchor tenant like supermarket chain (NTUC Fairprice, Cold Storage), food court chain (Kopitiam, Koufu, food republic, etc), fast food outlets (McDonald, KFC, Burger King, etc), leisure dinning outlets, clothings stores, bakery, banks, medical clinic, telco shops, tuition centres, enchrichment centres and electronics or technology related stores (Best Denki, Challenger, Harvey Norman, etc).  All these added up is equivalent to the lifestyle of Singaporean.  Regardless of good or bad economic condition, Singaporeans day-in day-out or week-in week-out have to access to those.  As such, this has made retail Reits in Singapore a resilient and recession proof type of business.  This is the strong reason that I like to invest in retail Reits.

Based on FCT FY2015 earning, it has a NAV of $1.91 (and I managed to buy it at 0.94x NAV), DPU of 11.608 cents (translating to 6.45% yield with reference to my holding price of $1.80), a healthy gearing level of 28.2% with 75% of its borrowing on fixed rates or hedged via interest rate swaps (that is relatively "safe" in rising interest environment) and its overall portfolio occupancy is at 96%.

Like CMT, FCT is considered an "income stock" in my portfolio without doubts.

Potential Upside :
At the moment, FCT only has 6 suburban malls in its asset portfolio (relatively small compared to CMT) but it does have couple of malls from its sponsor that it could acquire in future to boost its portfolio and earning.  Some of these are The Centrepoint (in the pipeline), Eastpoint, Robertson Walk, Valley Point and Waterway Point.  Apart from the normal of asset acquisition, its growth strategy also includes Asset Enhancement Initiative (AEI) (which is happening now for Northpoint Shopping Centre) and organic growth (in the form of positive rental reversions or annual rental step-ups).  Since 2013, FCT holds 31.17% of the units in Hektar Real Estate Investment Trust, H-Reit, a retail-focused REIT in Malaysia and that could potentially provide another channel for growth.

Another point to note is since Singapore is targeting a population of 6.9m, the demand of this type of lifestyle suburban malls can only be going up as they are considered part of infrastructure. 

Potential Downside :
Like any other Reits, the downside is pretty the norm like high gearing ratio (which makes it difficult to acquire assets), lack of quality acquisition that are yield-accretive (after its sponsor's assets dries up)

Personal Expectation :
As an "income stock" the minimum personal expectation is FCT ability to maintain at least 7.50 cents of distribution per annual (that was the DPU during the 2008 GFC) and further expectation is for FCT management to do more yield-accretive assets acquisition to growth the company and bring value to unit holders.  As mentioned above, I have dedicated fund for this investment and hence the current purchase is just the initial and will be accumulating more when another financial crisis occurs (price badly beaten down) or attractive valuation opportunity arises.

Frasers Centrepoint Trust

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