Analysis of CapitaMall Trust and Frasers Centrepoint Trust

In my first analysis on this blog, I mentioned the other REITS I was looking at before buying FLIT and MLT. They were CMT and FCT. In this post, I will share with you the quality of its portfolio, financial and industry outlook.

CMT FCT 1

There is no doubt that the management of CMT and FCT have excellent track record of increasing its DPU per unit every year as shown. However, why CMT is a better buy than FCT? Let’s take a look.

Portfolio Overview

CMT and FCT have 16 and 6 shopping malls all around Singapore respectively. All shopping malls own by CMT and FCT are near or beside a MRT station or bus interchange. This means that it is easy for customers like us to go to their shopping mall, aka more convenient. We understand that for FCT, Northpoint North Wing and Causeway Point are FCT’s gems. However, what I don’t like about FCT is its smaller shopping mall such as Bedok Point and Anchorpoint. I honestly felt that it was a mistake of acquiring Bedok Point because Bedok Mall which is owned by CMT is just beside Bedok Point. Anchorpoint is too far from the nearest MRT station.

CMT FCT 2

One thing to take note for FCT is that close to 76% of the rental comes from Causeway Point and Northpoint North Wing and Yishun 10. That is a huge risk to take on if both gems did not perform well. CMT has a more diversified portfolio compared to FCT. You can see from the image I share how each asset contributes almost equally to the net property income. I did not go into detail of CMT shopping malls because they really are the best. Comment below if you disapprove!

CMT FCT 3

A look at the Portfolio occupancy, we can see that 98.5% and 94.7% of all rentable spaces are occupied in both CMT and FCT respectively. It is very depressing to look at the occupancy rate of Bedok Point and Anchorpoint. However, bright spots for FCT are that occupancy rate for Causeway Point is resilient, Northpoint City, Changi City Point figures are improving every year. We can expect occupancy rate to improve next quarter.

CMT FCT 5

WALE figures for CMT and FCT are 1.9 years and 1.72 years respectively. The higher the WALE the better though it has its cons too. Before we start looking at the lease expiry profile, we should note that the FCT end of FY2018 is Sep 2018 while CMT is Dec 2018. About 85% for both CMT and FCT leases will end from now till 31 Dec 2021. For those who are about to invest in either CMT and FCT should take note of this risk as recession might happen on or before or after 31 Dec 2021. Due to this, both CMT and FCT might record negative rental reversion during this period.

CMT FCT 4

In terms of rental reversion, I would say that FCT did a very good job but the figure got dragged down by its underperformers. Looking at the quarter figures, you can see FCT’s Bedok Point recorded -23% rental reversion and Anchorpoint at -10.4%. It is the same story for its full year figures where FCT’s Bedok Point recorded -23% rental reversion and Anchorpoint at -5.1%. However, despite the fact that these two shopping malls recorded negative rental reversion, the figures are positive when looking at overall numbers. On the other hand, CMT recorded less than 1% positive rental reversion with negative rental reversion of at most -2% coming from some malls. Overall, the number is at 0.6%.

Debt

CMT FCT 7CMT FCT 6

In terms of financial performance, FCT beats CMT hands down. Its aggregate leverage is lower than CMT at 28.6%. It is difficult to judge the aggregate leverage for CMT because CMT has just announced recently that it has acquired Westgate using private placement and debt. The aggregate leverage should be from 34%-36% after the acquisition. Interest coverage for FCT is also higher than CMT’s. Average Cost of debt for FCT is lower than of CMT. FCT might need to refinance a lot of its debt in the next three years where close to 88% of its debt will mature in the next three years but this is only so for 31% for CMT. Even though, FCT might have done well in its balance sheet, it is important to take note that CMT credit rating is better than FCT and that most of FCT’s debt will mature in the next three years. You be the judge.

Industry Outlook

Remember the time when Amazon Prime Now came to Singapore? It resulted in retail REITs, Sheng Siong to drop. Those who believed that Amazon will not be as successful as others thought would have profited from the fear. Those who bought despite the fear was right as retail REITs and Sheng Siong still produce great results.

The retail industry in Singapore still looks dull according to URA data. According to an analyst report, Singapore’s QOQ retail rental growth reverted to negative territory in 2Q2018. The rental growth has been negative since 1Q2015 and only inched up 0.1% in the previous quarter. You can refer to these websites for more information: RETAIL PROPERTY MARKET OVERVIEW section, Independent Retail Market Overview section, and URA media release.

Conclusion

Looking at the Net Asset Value, CMT is standing at $2.03 while FCT is at $2.08. Based on the last trading price as of 21/12/2019, CMT’s P/B ratio is at 1.13 while FCT is at 1.04. Looking at just P/B ratio, we can tell that the FCT is quite attractive at this price. However, I would prefer CMT over FCT. Reason being, it has a diversified portfolio than FCT. The risk for FCT in terms of rental income is that close to 76% of its property income are from the bigger malls. The risk is that if the bigger mall did not perform well, it will drag down the DPU. Anchorpoint and Bedok Point are not contributing much to the rental income. It was definitely a failed acquisition by the management to acquire Bedok Point. Bedok Point was bought for $127 million in 2011 and it is now valued at $110 million. There isn’t high probability that the mall would be sold at a premium looking at the depressing rental reversion and occupancy rate. On a brighter spot, FCT’s sponsor which is Frasers Property has solid shopping malls such as Northpoint City South Wing and Waterway Point that FCT could acquire. With such a low gearing ratio, there is room to take on more debt to acquire bigger shopping malls to diversify its portfolio.

I am worried for FCT and CMT in the next three years because most of its leases will be expired by then. As for debt maturity, although FCT has a low gearing ratio, most of its debts will expire in the next three years too.

Overall, after analysing both REITS, I would stay out of them until the industry has improved.

3 Comments Add yours

  1. Dirk Somes says:

    thank you for sharing with us, I believe this website really stands out : D.

    Like

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