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10 things I learned from the 2019 Frasers Centrepoint Trust AGM

10 things I learned from the 2019 Frasers Centrepoint Trust AGM

Frasers Centrepoint Belief (FCT) is a SGX-listed retail REIT that owns six suburban retail malls situated round Singapore. They embrace Anchorpoint, YewTee Level, Causeway Level, Northpoint Metropolis North Wing, Bedok Level, and Changi Metropolis Level. As at 30 September 2018, FCT’s portfolio of properties was valued at S$2.75 billion.

FCT has been on our watchlist for a while now and with good cause too – since its IPO in 2006, the REIT has achieved 12 consecutive years of distribution progress. On the similar time, the market is nicely conscious of FCT’s exceptional monitor document which makes shopping for alternatives for FCT exhausting to return by.

Nevertheless, a shock announcement by CEO Dr
Chew Tuan Chiong on the newest annual assembly might put FCT’s future efficiency
unsure…

Listed here are 10 issues I discovered from the 2019
Frasers Centrepoint Belief AGM:

1. Income grew 6.5% year-on-year to S$193.three million for FY2018 and internet property revenue (NPI) grew 5.9% to S$137.2 million. This was primarily as a result of larger revenues achieved at Causeway Level and Changi Metropolis Level, and improved rents and occupancy at Northpoint Metropolis North Wing following the completion of its asset enhancement initiative. Regardless of the expansion of e-commerce, the CEO believes that FCT’s malls will proceed to do nicely as visiting the suburban mall stays half and parcel of our native way of life and offers a spot for social bonding. He added that FCT’s greater malls sit subsequent to move nodes – Causeway Level, Northpoint Metropolis North Wing, Changi Metropolis Level, and YewTee Level are all situated subsequent to MRT stations – and a well-managed mall in a very good location will proceed to prosper.

2. Distribution per unit grew 1.zero% to 12.015 cents. It’s the 12th consecutive yr that FCT has paid a report distribution to unitholders:

Supply: Frasers Centrepoint Belief

Based mostly on FCT’s unit worth of S$2.28 as at 28 January 2019, its distribution yield is 5.2%. The CEO believes that Singapore retail REITs will proceed to stay a relative secure sector amid an unsure international outlook, as evidenced by the premium assigned to retail REITs and their decrease yields in comparison with different varieties of REITs. (To view the distribution yield of all Singapore REITs, you possibly can take a look at Singapore REIT knowledge.)

three. Gearing ratio as at 30 September 2019 is 28.6% — one of many lowest amongst Singapore REITs. FCT’s gearing ratio has truly come down through the years regardless of its portfolio rising almost 3 times in worth since its itemizing. FCT’s low debt ranges additionally means it could actually safe loans at decrease rates of interest; its common value of borrowings is just 2.6%. (As compared, CapitaLand Mall Belief’s common value of borrowings is three.1%.) Common debt to maturity is 2.2 years and 64% of complete borrowings are at fastened rates of interest.

four. FCT can look ahead to Northpoint Metropolis South Wing and Waterway Level as potential acquisitions from its sponsor, Frasers Property,  within the close to to medium time period future. The CEO additionally highlighted Australia as a possible abroad market because the sponsor has a presence there.

Supply: Frasers Centrepoint Belief

5. A unitholder highlighted Bedok Level’s poor efficiency (NPI fell 30.eight% year-on-year) and questioned if the mall would ever flip round. Chairman Dr Cheong Choong Kong acknowledged that Bedok Level remained a wrestle even after a tenant remixing and, whereas the REIT isn’t actively soliciting a sale, the administration would contemplate a critical supply if it got here alongside. The CEO stated there are sure to be laggards in any portfolio and Bedok Level includes solely 1-2% of FCT’s portfolio. There have been excessive hopes for Bedok Level and it was a superb mall when it began, however the setting across the space modified when extra malls sprang as much as compete. He added that smaller belongings like Bedok Level would keep a sure base worth as a consequence of its measurement and comparatively good location as it might attraction to smaller, personal buyers who’re to attempt their hand at retail.

6. One other unitholder needed to know the explanations behind Changi Metropolis Level’s higher current performances and whether or not the opening of Jewel Changi Airport would have an effect on the mall. The CEO stated that tenant remixing and a give attention to outlet shops at Changi Metropolis Level has proved profitable so far. Outlet malls take up round 30% of the mall’s retail area and the administration intends to develop this phase additional. The CEO shared that one other issue for Changi Metropolis Level’s success is the power to journey out the robust occasions. The mall confronted disruption for years when the Downtown MRT line was being constructed however is now having fun with the human visitors the brand new practice line is bringing. The Downtown line was a big improvement for the mall because it connects on to the town centre, in contrast to the unique line which is an offshoot of the East-West line. The CEO added that Changi Metropolis Level didn’t lose any tenants when Jewel Changi Airport crammed 90% of its retail area, and is assured the mall will keep its long-term place as soon as the novelty of Jewel’s opening wears out.

7. The identical unitholder famous that F&R (meals & eating places) comprised 41.6% of Changi Metropolis Level’s retail area — whereas most Singapore malls often had 30-35% put aside for F&R — and needed to know if that performed an element within the mall’s efficiency. The CEO defined that a mall’s tenant combine is predicated on the native clientele across the space. Within the case of Changi Metropolis Level, it’s served by the enterprise park and expo crowds who search for lunch spots and bars after work. On the similar time, the mall can’t do with out different commerce sectors like clothes and style as a result of they will promote limitless volumes, in contrast to F&R which is restricted by what number of occasions you’ll be able to eat in a day.

eight. A unitholder highlighted that YewTee Level, regardless of being a comparatively small mall situated within the suburbs, was charging close to Orchard Street rents and needed to know why the mall was so profitable. The CEO agreed that greater malls are likely to do higher as they will present an entire retail combine for buyers. Nevertheless, YewTee Level is exclusive as a result of it advantages from placemaking and a sure je n’ais se quoi (an inexplicable high quality that’s engaging) concerning the native space. The outside city sq. beside Yew Tee MRT station is surrounded by two malls — one in every of them being YewTee Level — and the right combination of outlets and eating places. The city sq. spontaneously turned a spot the place individuals like to go to, and buskers with their guitars could be seen performing there within the night. The CEO stated that a part of profitable placemaking is manufactured, however the remaining is right down to probability.

9. A unitholder observed that FCT’s common debt to maturity (2.2 years) and proportion of borrowings hedged at fastened rates of interest (64%) have been considerably decrease than most Singapore REITs. He questioned why the administration adopted such an aggressive coverage as rates of interest have been anticipated to proceed rising. The CEO defined that the rationale why corporations hedge is to guard towards a state of affairs the place rates of interest rise too excessive, too shortly and trigger an organization to default on its debt. The price of hedging is that you simply pay a better rate of interest upfront, however achieve safety towards uncertainty. Nevertheless, for a similar purpose why a billionaire like Invoice Gates doesn’t want to purchase medical insurance, an organization doesn’t have to hedge most of its debt if it could actually comfortably stand up to a drastic spike in rates of interest. Hedging is dear proper now because the banks already anticipate rates of interest to rise and can cost the anticipated rise in charges upfront plus a premium. Since FCT’s place is comparatively protected resulting from its low gearing, it is sensible to save lots of on the excessive value of hedging and benefit from the decrease rates of interest in the intervening time. On the similar time, the administration screens rates of interest day by day and can place a hedge if a beneficial fee seems.

10. On the finish of his presentation, Dr Chew introduced that he can be retiring this yr on the age of 62 after 10 years as CEO of Frasers Centrepoint Belief. The chairman stated the announcement was a bombshell and that he’ll miss him. He added: ‘62 is just too younger an age to consider retirement, however he doesn’t consider me!’ He sincerely thanked Dr Chew for his contribution as his tenure oversaw a decade of document progress for FCT. I personally assume there’ll all the time be some uncertainty whether or not an organisation can proceed to carry out in addition to it did every time a long-staying and profitable CEO leaves their publish. In any case, Dr Chew’s successor may have some fairly massive footwear to fill.

Appreciated our evaluation of this AGM? Click on right here to view an entire record of AGMs we’ve attended »

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