The last time I went to update about FCT was back in April when news were coming out that they were going to acquire Changi City Point. How time has flied since then. Fct of course has remained my major stake in the portfolio.
FCT has just announced their full year results on Thursday and DPU has once again hit record high with 11.187 cents. As an investor vested in the stock, I am happy to know that their bottomline will go right into my pocket in the mean of dividends.
So the question now, what is next for FCT?
Being curious, I went to do a projection for its FY2015 DPU based on the latest information provided.
First, the occupancy seem to stabilize at a pretty high rate for all the malls, including the worrying Bedok Point. The problem with Bedok Point is it appears the management are reducing their passing rent in order to fill up the occupancy for the mall. We’ll see more about it later. Overall, the occupancy for all the malls are now at an average of 98.9%, which I thought was very good.
Next, we take a look at the respective mall’s capitalization rate, which measures the efficiency of the management in extracting out the rental income from each mall. This is taken by dividing the mall’s respective NPI by their asset valuation. It appears that these malls have a relatively good capitalization rate, if we compare against Paragon mall @ 5.28% and Plaza Singapore @ 5.41%. So no worries on this one either.
| Capitalization Rate (%) | ||
|---|---|---|
| FY2014 | FY2013 | |
| Causeway Point | 5.35 | 5.35 |
| Northpoint | 5.25 | 5.25 |
| Bedok Point | 5.50 | 5.50 |
| YewTee Point | 5.50 | 5.60 |
| Anchorpoint | 5.50 | 5.45 |
| Changi City Point | 5.70 | N/A |
The next 3 years is going to be crucial for FCT as almost all of their upcoming leases are going to expiry and need to be renewed. As an investor, you can look at it both ways – either be worried that the occupancy isn’t going to be filled up or confident that the management can increase the passing rent for the new leases. For FCT, it appears that the management are positive looking about the latter.
If we look specifically only for next year, i.e FY2015, we can see that more than one third of the leases are going to expire, and this is where the management could see opportunity to increase their higher passing rent to the tenants.
For the purpose of projection, I have used the average 2014 figure for the percentage increase in each of the mall shown in the data below. And the total figure I got was an increase in NPI from $118.10 million to $135.20 million. The majority of the increase are still coming from the contributions from Changi City Point acquisitions.
| Quarterly historical data | 1Q14 | 2Q14 | 3Q14 | 4Q14 | Average | |
|---|---|---|---|---|---|---|
| Increase in rental over preceding rates | ||||||
| CWP | 15.4% | 9.7% | 8.1% | 12.0% | 11.3% | |
| NP | 7.3% | 10.9% | 7.0% | 4.0% | 7.3% | |
| ACP | 0.2% | 11.8% | 6.9% | 13.5% | 8.1% | |
| YTP | 6.1% | 11.1% | 8.1% | 17.4% | 10.7% | |
| BPT | -16.0% | -11.8% | -2.9% | 5.6% | -6.3% | |
| CCP | – | – | no renewals | 17.7% | 8.9% | |
| FCT Portfolio | 2.5% | 9.3% | 7.8% | 10.9% |
| NPI ($m) | ||
|---|---|---|
| FY2014 | FY2015 Est. | |
| Causeway Point | 56.48 | 58.11 |
| Northpoint | 36.00 | 37.54 |
| Changi City Point | 5.16 | 18.53 |
| Bedok Point | 6.23 | 6.11 |
| YewTee Point | 9.56 | 10.12 |
| Anchorpoint | 4.67 | 4.80 |
| Total | 118.10 | 135.20 |
Taking the FY2015 estimated NPI into the calculation, I have derived an estimate DPU of 12.22 cents for FY2015, which is a 9.2% increase year on year. Taking current price at $1.93, this represents a forward yield of 6.3%, quite decent if you ask me.
| NPI | 135,200 |
|---|---|
| Less: Borrowing Costs | (18,000) |
| Less: Trust expenses | (1,700) |
| Less: Management Fees | (13,800) |
| Net Income | 101,700 |
| Add: Net Tax Adj | 5,700 |
| Add: Distribution from Associates | 4,500 |
| Distribution available to unitholders | 111,900 |
| FY 2015 DPU Est. | 12.22 cents |
I do not think there will be any surprises coming in from FCT in the next 3 years or so. Potential risks can come in the form of lower occupancy rates and refinancing issues but if the management are able to mitigate them well, then we should see stable contributions from them in the next couple of years so. Now that you know, will you still be vested with the stock?
Please let me know your comment.
Hi B.
I hadn't look at FCT in depth but from your analysis, the REIT looks promising. At least better than Frasers Commercial Trust (FCOT) which I just completed my research on.
Hi Sreit system investor
I left a comment on your fcot analysis.
Why better than fcot? Is that because of the cap rate? Cap rate for retail malls are definitely higher than office properties so I think thats the norm.