REITs Reflections – News – Jan 2017

It was my first hardcopy Business Times Weekend (Singapore) for a long while. (There was a 20% price increase but the paper quality has improved… This helps if you are a collector.)

I did not go knocking for REIT (Real Estate Investment Trust) news but two came in this issue (21-22 Jan 2017).

After the earlier research, these articles become clearer to me or at least I seem to be able to look at ‘key’ items. Only time will tell whether this amounts to true wisdom.

Note – all monetary figures are in Singapore Dollars.

CMT’s rental reversion keeps sliding – Kalpana Rashiwala

CMT = CapitaLand Mall Trust, the REIT with the longest history in S-REITs (Singapore REITs)

Rental Reversion percentage (%): rise of existing rental charges in comparison to rates the year before (not counting recently developed and remodeled units) – the rates are usually agreed upon 3 years earlier. [A two column table is used to depict the (general) downtrend.]

FY (Financial Year) 2007, it was 13.5%. It has remained below 9.7% from FY 2008 to FY 2016. Its two troughs were in FY 2009 at 2.3%, and FY 2016 at 1%. It had stayed above 6% from FY 2010-14.

Structurally, new retail outlets had been popping up to contest their catchment areas. On pure instinct (more analysis is required therefore), it seems the management made the right move to sell off Westgate Tower ($17.1 million kept for ‘general corporate and working capital purposes’) and Rivervale Mall (in 2015 with a $72 million profit, out of the $116 million price, after fees and expenses – See 15 Oct 2015 Channelnews Asia article). Funan, near City Hall MRT station, is being refurbished. 97% of CMT’s debt comes with fixed interest rates. [Hence interest rate hikes may be less threatening, depending on whether CMT is re-financing within a higher interest rate environment. The overarching environment: ‘Singapore’s interest rates are expected to rise in tandem with US rates, which will increase the borrowing costs for Reits here.’ See TODAY article, 31 Jan 2017.] The joint ventures at Raffles City and Westgate mall are not.

Gauging FY 2016 against FY 2015, Gross revenue grew 3.1%, so did NPI (Net Property Income) at 2.9%, Distributable income gained 0.6%. ‘On a comparable mall basis’, gross revenue grew 0.4% and NPI stagnated [which malls were ‘comparable’ was not explained in detail.] It was not stated if the distributions were in units or in cash; or what ratio of both.

The author suggests that the renewal of leases [51.4%/Net Lettable Area (NLA) – Bedok Mall, 35.8% – Westgate, and 30.6% Lot One Shoppers’ Mall] would allow CMT the chance to change tenant compositions. This conceivably could be used to establish different niches/marketing points or invite more profitable tenants in.

Another point that needs research: ‘counter’ or trading price versus ‘Adjusted Net Asset Value per unit (excluding distributable income)’. The former was on 20 Jan 2017 was $1.985; the latter – $1.86 on 31 Dec 2016 (equal to 31 Dec 2015). I wonder what is the value of knowing the latter value…

* Refer to this post on CMT for more details.

FCT posts 0.7% rise in DPU for 1st quarter – Lynette Khoo

FCT = Frasers Centrepoint Trust (a comparable REIT? – Bedok Mall and Bedok Point are practically side by side… Hmmm the Replacement Cost Approach?)


NPI for 1st fiscal quarter ending 31 Dec 2016 fell 6.4%: Causeway Point (CP), Bedok Point, and YewTee Point could not make up for income declines from Northpoint (asset enhancement expected to end in Sep 2017; note that Northpoint includes the Yishun 10 Retail Podium), Changi City Point and Anchorpoint. (REITs have different fiscal quarters it appears… Ascendas-REIT: First Quarter Ended 30 June 2016). In that quarter, CP took up 52.8% of the NPI; with second and third being Northpoint and Changi City Point. Similarly, CP constituted 52% of the NLA in the period. NPI FY 2014 = $118, 096, 000 while NPI FY 2015 = $131, 043, 000 – in other words, (rounded up) 11% expansion. [p2, FCT 4Q15 Distribution per Unit up 2.7% year-on-year].

Prior to 31 Mar 2016, FCT’s property manager accepted 20% of its fees by way of REIT units. This has been jacked up to 70% till 31 Dec 2017 in a bid to prop up the Distribution Per Unit (DPU). Including FY 2007 to FY 2016, DPU has been on a constant uptrend.

  • FY 07 > 6 cents
  • FY 08 & 09 > 7 cents
  • FY 10 & 11 > 8 cents
  • FY 12 & 13 > 10 cents
  • FY 14, 15, 16 > 11 but below 11.8 cents

The presented compound annual growth rate was 6.9%. [How much does this exceed inflation though?] Going back earlier, FCT’s 2016 Annual Report cited Bloomberg on p. 5. The latter stated that FCT’s DPU yield was 5.34% (exceeding Singapore’s Government 10-year bond yield of 1.758% by 358 basis points).

Its 91.3% occupancy is lower than CMT’s at 98.5% (period ending 31 Dec 2016). 74% of NLA are up for rent by 30 Sep 2017 (end of 2017 fiscal year). According to FCT’s press release <FCT 4Q15 Distribution per Unit up 2.7% year-on-year>, PDF dated 22 Oct 2015, FY 2015 occupancy was 96%. Annual mean rental reversion was 6.3%.

Since Chew Tuan Chiong, CEO Frasers Centrepoint Asset Management Ltd (FCT manager), referred to low gearing at 29.7%, I did further study. This detail is consistent with <Frasers Centrepoint Trust: Investor Presentation>, (Feb 2017) – a 56 page PDF document. Historically, gearing (‘Calculated as the ratio of total outstanding borrowings over total assets as at stated balance sheet date’) peaked at 31.3%, FY 2011 (ending 30 Sep 2011). Only in one year between 2007 and 31 Dec 2016 did it go below 28%; it exceeded 30% in 3 of the years in the said period. In FY 2015, roughly 75% of its borrowings were ‘on fixed interest rates or … hedged via interest rate swaps.’ [p1, FCT 4Q15 Distribution per Unit up 2.7% year-on-year] Interest Cover (‘Calculated as earnings before interest and tax (EBIT) divided by interest expense for the quarter…’) was 7 times for period ending 31 Dec 2016 and FY 2016. [It would be important to see past Interest Coverage nevertheless.] But we see that its All-in average cost of borrowings was 2.1% in FY 2016 and 2.4% in FY 2015.

Counter/trading price of FCT units was $1.965 on 20 Jan 2017.

Finally, a comparison of strategies (?):

FCT (22 Oct 2015) – ‘FCT is focused on increasing shareholder value by pursuing organic, enhancement and acquisition growth strategies.’ (above mentioned press release)

CMT (above mentioned Business Times article) – CEO CapitaLand Mall Trust Management Limited CEO, Wilson Tan, highlighted ‘asset enhancement’, ‘capital/debt management’, and ‘operational efficiency’ as channels to ‘stabilise CMT’.


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