Saturday, October 25, 2014

What's next for FraserCenterPoint Trust (FCT)?

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 (%)
Causeway Point5.355.35
Bedok Point5.505.50
YewTee Point5.505.60
Changi City Point5.70N/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 data1Q142Q143Q144Q14Average
Increase in rental over preceding rates
CCP- - no renewals17.7%8.9%
FCT Portfolio2.5%9.3%7.8%10.9%

NPI ($m)
FY2014FY2015 Est.
Causeway Point56.4858.11
Changi City Point5.1618.53
Bedok Point6.236.11
YewTee Point9.5610.12

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.

Less: Borrowing Costs(18,000)
Less: Trust expenses(1,700)
Less: Management Fees(13,800)
Net Income101,700
Add: Net Tax Adj5,700
Add: Distribution from Associates4,500
Distribution available to unitholders111,900
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.

Thursday, October 23, 2014

SPH Reit - When will Seletar Malls be injected?

Following the article on SPH Reit by fellow blogger S-Reit System Investor which I thought was well analysed and the recent buzz surrounding the injection of Seletar Mall into SPH Reit, I wanted to follow up the discussion with the management thoughts on the Malls and my thoughts into the matter.

Here is the Q&A discussion with the CEO and CFO of SPH Management at the seminar organized by the Securities Investors Association.

1.) There are reports that local retailers are struggling with high and painful rental renewals. What is your view on current rental renewals?

CEO: From a business point of view, rental is a key component and the other key factor is labour.

From a retailer point of view, each business set up should make sense to him or her. The number of labour or manpower that they can recruit is sometimes not within their control. So, retailer would wonder how to continue? They will look at good performing units and cut back on unsustainable units. 

In future, retailers would be very savvy in terms of where they open new units and where they continue their presence. For example, more than 90 per cent of retailers chose to stay with Clementi because the business is tested and they know the kind of sales they can achieve. Bottom-line, we have to give them the best environment so that the mall becomes their best choice.

2.) How do you actually make your money?

CEO: Our rents are definitely not below market rate especially for Clementi Mall which has already achieved S$1,590 per square foot in first lease cycle. Even before signing the lease agreement, we discuss with the tenant about their sales projection and sustainability.

3.) What about raising parking charges?

CEO: Paragon Mall has a surcharge for vehicles parked before the mall’s shops open. This is because there is a hospital nearby. So, people visiting the hospital will park their vehicles at the mall due to limited parking availability. However, the surcharge is just S$2 and is redeemable if you shop for S$30 in the mall. We don’t want to increase the car park charges to such a point that shoppers should feel the mall is too expensive.

4.) Do you have any plans to manage overseas Reit?

CEO: Our mandate is Asia Pacific but our focus will be Singapore, at least in the near term. However, we are doing a ground study on the overseas expansion.

5.) Do you think you will exhaust the S$20 million income support in five years?

CFO: Based on our year-to-date performance, especially the Clementi mall that performed better than forecast, the income support we actually require is lower. So, at this point S$20 million of income support would be more than sufficient. However, we also have to see the economic conditions during the remaining period of the income support and we cannot guarantee that we will exhaust it faster or slower.

6.) Why are management fees based on NPI as opposed to DPU?

CFO: The management fees is based on two components, 5 per cent of net property income and 0.25 per cent of net asset value. So, management fees may not grow in proportion to net property income but the fee structure is in line with market.

7.) Is your forecast operating cash flow sufficient to pay down the debt after factoring interest expense and capital expenditure?

CFO: Yes, definitely. Our net property income margin is 75 per cent which is very healthy and is sufficient to cover the financing cost.

8.) Why did you lose S$9 million in nine months on the net hedging reserve?

CFO: This is the insurance premium we need to pay for hedging our debt. In accounting terms, it’s a fair value loss or a net payable position because of the gap between the short term and long term rate. If we see short term rate increasing then we may be in a receivable position.

9.) Why is the yield for Paragon lower than Clementi mall?

CFO: Yield for Paragon is 4.8 per cent and Clementi is 5.4 per cent. Paragon is a blended yield of medical and office as well as retail. The yield of Clementi Mall is in line with other suburban malls.

My Thoughts

Mall business is getting to become a more complex business proposition in the 21st century. Unlike other properties such as office or industrial which is highly driven more on the economy, property managers have to be creative and innovative to make the malls an active and vibrant for shoppers to visit. A successful retail malls is about strategy and implementation and requires constant work and determination to nurture a good mall.

Many people seems to blur the relationship between landlords (management in Reit instance) and tenants. The truth is rental reversion is highly correlated to traffic visitors and therefore management's objective to increasing rental reversions is to promote traffic arrivals into the malls via several initiatives such as organizing events to create a buoyant and lively atmosphere. On the other hand, the tenant's role is to convert traffic into sales and hiring a good sales person (and product) would boost its existence amongst the many competitors in the mall.

I previously blogged (Link Here) about how finding the right tenant mix is crucial to improving traffic and to the long term success of the malls. Having simply the highest "income" generators (usually the F&B and Fashion) is not enough to sustain a long term success of the mall business and usually you would need those "traffic" generators (but "income" destroyers) in your malls to pull traffic in. Example of such would be supermarket chain or cinema, and to the delight of Seletar malls, they have secured Shaw theatres and NTUC Fairprice supermarket among their anchor tenants.

Initial Tenant's Mix on SPH Reit Malls

If you compare with a few of the properties below, you would also see that the cap rate and average rental rate for Seletar Malls are rightfully below those matured malls like Plaza Singapura or even Clementi Mall. You can see therefore that the management would probably need to work their way up to increase the passing rent before the malls get sold to SPH Reit and this might take at least a year or two more before results can be seen. Therefore, we would probably see at least 2016 before Seletar Malls get injected into the Reit. With the parent company still holding major 70% stake in the Reit, it is very possible that they would want to manage the mall well and nurturing them before injecting into the Reit.

Comparable PropertyOwnerCap RateAvg Rent/psf
ParagonSPH Reit5.28%$21.70
Clementi MallSPH Reit5.11%$15.90
CauseWay PointFCT5.42%$13.50
Plaza SingaporeCMT5.41%$20.10
Seletar MallSPH Reit4.85%$11.90

I'm vested in SPH but not SPH Reit and the above are purely based on my own personal opinion.

Wednesday, October 22, 2014

Bear market will make you rich

We are into the final week of the October month and it seems forever since we last had such a volatility in the market. The month of October has historically been the most volatile month for stocks (such as the 1929 crash, credit crunch 2008) and it has proven itself right once again, at least this year.

I remembered the time I was in Spain while watching the Dow dropped over 400 points in a single day and I was watching the STI stocks dropped quite a bit as well, especially for oil and gas related (Keppel, Sembcorp) and commodities stocks (Wilmar, GoldenAgri). The brief correction keeps quite a number of people on the toes for quite a while, some panicking while the others are excited about an opportunity to put their investment funds to use.

Personally for me, I was hoping for a correction for sometime now. I see the stock market as a cycle where it goes up and down and it is only healthy that it did what it does because it will reverts back to the long term average mean, which keeps going up over time. Sure, my net portfolio worth might goes down during the correction, but having a cheaper market means I will use lesser funds to buy the same stock that will yield a higher dividends in terms of percentage returns. And to be honest, when you set yourself for financial independence, all that matters to you at the end of the day is cashflow cashflow cashflow, not networth.

Take a classic groceries example for a second. You had $100 to spend on groceries for the weekend to buy a couple of meats, fruits and some snacks and drinks for the party. Now, assuming that the supermarket is holding an anniversary and are dishing out discounts to the items you are buying, should you be happy or sad that the worth of your meats and snacks are now lesser than before? Of course, you would be ecstatic as it either means that you can buy more items with the same $100 or you can buy the same number of items with lesser amount of money. Fantastic either way if you ask me.

Here's the truth, a bull market will bring butterflies to your stomach and make you feel good on the outside but a bear market will make you rich over time. My plan is to reach financial independence by the time I am 35 years old and it all depends on the amount of cashflow I would have at the peak of the journey, so the longer the bear market persists, the faster I am going to reach my financial independence, all caveat taken. So while most people are worried about their portfolio, why not take the bear market as an opportunity to increase your exposure accordingly, focus on the business and reach financial independence earlier?

Tuesday, October 21, 2014

My Spain trip adventure ~ 13 - 21 Oct

Hola Singapore :) 

I am finally back to Singapore after about a 10 days study trip away to Spain during the past week. During these periods, I have only traveled to Madrid and Barcelona and it has been a very enriching experience knowing much more about the history of the cities. I also realized that between 7 to 10 days is a good break to take as I was feeling somewhat missing my family back in Singapore.

Anyway, the trip all started with somewhat a scare with the Ebola news coming out of Madrid a few days before I fly. I was almost not going to make the trip due to family concerns but after taking calculated risks and some advices, I decided to go ahead. As it turns out, the concerns were unwarranted as the affected patient (latest news - she was cleared negative for the virus) was contained in a particular area and the cities were as normal as it could have been in other days.

Anyway, this is not a post about budgeting for trips or anything. I just wanted to share some of the highlights and learnings takeaway I get from this trip. This post will be long, but I wanted to capture the highlights of the trips mostly.


1.) IE Business School

I went there for a one module exchange trip, so the majority of the weekdays were spent in school attending lectures, doing projects and networking.

The course was mostly about luxury entrepreneurship, so we learnt about business cases relating to Oscar de la Renta (who by the way has just passed away today), a legendary in the luxury fashion industry. We also learnt how to start an entrepreneurship, seeking seeds funding and exit opportunities.

IE MBA is one of the top 5 European business school in the world, so it is a privilege to be able to go, experience the teaching and meet some of the students there.

2.) Plaza de Mayor / Mercado San Miguel / Restaurant Botin

Plaza de Mayor was built during King Philip III (who is at the center of the statue) reign and is a central plaza of Madrid, Spain. They are rectangular in shape and has a total of 9 entranceways.

This is a must go place if you are in Madrid as they are at the center of attractions for tourists and has a lot of great restaurants (including one of the oldest restaurants in the world).

Mercado San Miguel - this place is just right nearby Plaza de Mayor and the huge market sells all kinds of Spanish local cuisines including tapas, sangrias and seafoods.

Some of the seafoods including oysters, sea urchin and clams I've eaten there are the best I had so far in my life. They are extremely fresh and juicy, and they are not extremely pricey if you compare it in Singapore. A must eat!!!

We also went to Restaurant Botin nearby, which was deemed the oldest restaurant in the world by the Guinness World of Record. The place was packed so we had to make reservations a week before. Being commercialized these days, the food was kinda pricey at about Eur 40 per person but there's many must try food there such as the suckling pig and lamb.

3.) Casapatas Flamengo Show

Flamengo dancing is one of the culture of Madrid and some of the dances performance was interesting and eye opening. I just thought the venue was a little packed with people so it makes me a little uncomfortable watching the show. But all in all, this performance was one of the recommended by tripadvisor.

4.) Santiago Bernabeu, Real Madrid

I've never thought I was going to miss this being a soccer fan and what can be better than visiting one of most decorated clubs in football at the Santiago Bernabeu.

You get to visit almost everything at the stadium from the field to the dressing room to the press conference room, etc. You are also able to see the actual Ballon D' Or which C.Ronaldo won recently and the La Decima 2014 Champions League trophy displayed there as well.

A must visit for football fan!!!

5.) Telefonica - Company Visit

We went to a company visit at one of the leading telco blue chip company in Spain, Telefonica.

I used to own this stock a couple of years ago when the company is yielding around 8 - 10% yield during the Euro crisis in 2011. I have not looked back since how is the company doing now. Nevertheless, the headquarter is beautiful it feels like you are living at some robotic island out there.


1.) Train to Barcelona

We booked an overnight train trip from Madrid to Barcelona and this would be one of the more memorable experience I've never had previously. The cabin was super small (like a bomb shelter room) and you had to squeeze 6 people inside one bunk. Nevertheless, it is one of the memorable experience I've had in this trip.

2.) Nou Camp, Barcelona

This time, we go one better. We attended a football match at Nou Camp with more than 100,000 capacity. The atmosphere was electrifying as fans were singing and chanting throughout the match. Imagine if this were an El Classico match, it would have been doubled or tripled.

It's a great experience having to see the likes of Messi, Neymar, Xavi and Iniesta played on the field. It almost feels like I am playing FIFA right there!!!

Oh, and did you know that the beer there was 0% alcohol!!!??? :D

3.) Sagrada Familia Cathedral

You would not be doing yourself justice if you don't visit the Sagrada Familia if you visit Barcelona.

This place is soooo beautiful that you would just wow yourself throughout the entire journey.

Sagrada Familia is one of the architecture cathedral built by the famous Antonio Gaudi which was unfinished basilica due to various reasons. The sites have plenty of history so I would advise anyone to go there. One of my bucket list to see, and all the more so if you are a Roman Catholic.

4.) Port Olimpica

Port Olimpica is one of the night hangout places by the beach for tourists in Barcelona. It is very beautiful and windy, almost similar like the One Marina Keppel Bay we had in Singapore.

Overall, this was a good trip. I've never been to Europe so seeing them the first time round is always a great experience. I don't travel much either, so all the more I took this trip as part of my unusual luxury lifestyle which makes it even more special than ever.

I hope to come back one day and hopefully this time round I could bring my wife and son along, as I've missed them quite badly during these periods :)

Saturday, October 11, 2014

On Blog Leave from 12 Oct to 21 Oct - Study Trip

It's been almost a year and a half since I last travel on an aeroplane with my wife on a honeymoon with Japan. 

This time, I will be on a study mission trip to Europe for just slightly more than a week. I think it's going to be an eye catching experience as I had never been to the continent. During the period, I will be away and will not be blogging until I come back.

The market has been very volatile this month so please take caution if you are buying or selling.

See ya again real soon :)

Thursday, October 9, 2014

Things become luxuries when you don't take them for granted

Following SGYI posts (which I thought was very well written) recently on  "Practising Frugality to Achieve Happiness in a High Cost of Living Environment", I thought this post was going to be somewhat related.
You see, many of us are fortunate enough to be in the shoes we are in right now. The problem with us is because we up the level of comfort we live in, we tend to take many things for granted, and when we start doing that, we begin to lose an appreciation of how our society have evolved over the past couple of years.
Take traveling for instance. I think it is fair to say that most of us can well afford to travel to anywhere in the world we want to go. The tickets and accommodation are expensive depending on where you go but they are generally affordable once you start working. And because of this, many people started to view traveling for granted. They start to see travels like walking but fails to appreciate the true form of purpose when you travel to another country. Simlarly, we often see Iphones like a normal telephone but fails to appreciate the efforts and technology that is put into it.
If only we could pause a brief moment and reflect what we really have in possession in our life, then we would slowly but surely realize that we actually have “everything” – Well, maybe almost everything that life can offer you, literally.
Here is a quote I really liked a lot:
“Gratitute unlocks the fullness of life. It turns what we have into enough, denial into acceptance, chaos to order, and confusion to clarity. It can turn a meal into a feast, a house into a home, a stranger into a friend. Gratitude makes sense of our past, brings peace for today, and creates a vision for tomorrow.”
Many people think that living a simple life or having enough is often the answer to everything. But the view is often missing the other part of the equation – i.e working hard and having the right attitude to life. One can simply be very contented with life that he doesn’t have the right attitude to live life to the fullest, so there’s an under capacity and that’s not what we are really after. What we want is to give our best, live with the right attitude and be contented in life – a perfect combination to a meaningful life.

I have encountered young readers who thinks that it is ok not to put in their full effort in studies and work (and life) as he has been accustomed to living a very contented life for the past 21 years. It’s good that he thinks the contented life part this way but I think he could give a shot at how potentially he could transform and improve his life much better.
For me and personally my own view, I think it is fine to be ambitious in life, to want some form of luxuries (cars, condominium, travels, etc) at some point in our life, as long as one works hard for the money to earn them and appreciate (this is key here) the things that he or she already have. And this is precisely the most common problem and natural occurrence that happens to everyone at some point in our lives. We somehow become complacent and revert back to our default mode of taking things for granted. This is the REAL PROBLEMS that we are referring to and want to avoid.

When we don't take things for granted, suddenly anything and everything in life becomes luxuries to you.

Sunday, October 5, 2014

Vicom - Looking Ahead and Beyond - Part 2

In my previous post, I have discussed quite a bit on the core business for the vehicle testing and inspection for Vicom. Today, we will look at the other side of its business - the non-vehicle testing services in the form of Setsco, a subsidiary owned by Vicom since 2003.

Setsco provides calibration, testing and certification services to various industries. Some of the main industries covered are Aerospace, Chemical, Construction and Manufacturing industries - a main pillar of Singapore economies in recent times. We will take a look at each industries later in more detail.

Based on historical data prior to 2011 (when Vicom is still reporting its segmental results), we know that revenue contribution proportion has been split 1/3 from vehicle division and 2/3 from its Non-vehicle division. On profitability however, the vehicle division accounted for 2/3 while its Non-vehicle division accounted for 1/3. With the main core business reaching somewhat a mature stage at this point in time, any increase in revenue and profitability for the company can be accounted by contributions from its non-vehicle division, somewhat a key play for Vicom to grow its business beyond the traditional vehicle testing and inspection. This reminds me somewhat of another bluechip in SPH where the core business has reached a plateau stage and they have to diversify beyond their traditional business.

In its latest reported 2nd Q financial statements, the Chairman has mentioned that the vehicle testing business will somewhat moderate while its non-vehicle testing business is expected to grow despite the keen competition. Competition in this area is somewhat fierce, especially with overseas players such as SGS SA (Swiss) and Bureau Veritas (France) knocking on the local market door. Since the company stopped reporting its segmentation business in 2011, it is somewhat difficult for investors to look for financial figures from its Setsco business.

Based on the data we have, the profit margin has been increasing every year to what we have as 19.1% in 2010. Assuming we use the same historical CAGR, the EBIT we have today should somewhat more than triple the amount we see in 2010.

Year 2005 2006 2007 2008 2009 2010
Non-vehicle Testing Services     27.5    32.2   37.3    43.9     47.8     51.4
Non-vehicle Testing Services       3.3      3.8     4.7      5.6       8.8       9.8
Profit Margin 11.9% 11.9% 12.6% 12.7% 18.4% 19.1%

Comparing this against one of its main competitors in the same niche segment, Bureau Veritas - which has a profit margin of around 16.7%, I must say the management have done pretty well with the above average industry profit margins.

Industry Sectors

Singapore is a beneficiary of major industries coming in from overseas. In particular, the chemical and construction industry have been key pillar of what Singapore is going to shape up for the next decade which will benefit Setsco.

Chemical - Singapore’s position as a global chemicals hub has grown in tandem with the extensive development of Jurong Island — an integrated complex housing many of the world’s leading energy and chemical companies, among them BASF, ExxonMobil, Lanxess, Mitsui Chemicals, Shell and Sumitomo Chemicals. Presently, Jurong Island has successfully attracted investments in excess of S$35 billion. 

Construction - Demand for the construction sector remains strong in the next few years as the Singapore housing units shown by URA will reach all time high in 2015/2016, in particular with respect to the HDB and Private properties completion.

Manufacturing and Aerospace industries are also growing marginally with companies such as Rolls Royce using the Seletar campus as one of the MRO center.

It appears that Vicom are gearing up for expansion of its business beyond just the Singapore region. Already, they have set up an office in Malaysia, and another one should follow up in Vietnam. With its core business hitting a stag at the moment, the growth should come from the Setsco business and a use of its huge cash they hold in their balance sheet should do justice if it could return more value for their shareholders.