Thursday, January 22, 2015

AGM - Fraser Commercial Trust (FCOT)

It's been quite a while since I've last been to AGM which I think was for FCT last year during around the same time. The venue was the same at Alexandra Point which seemed very familiar to me by now. The AGM started at 10am in the morning, and I made my way slowly there taking mrt and walking breezily from the Labrador station.

This is one of the better AGM I have been to because the question and answer was honest, direct and related. There isn't quite any silly questions you would listen when you attend to the other AGM. I will be summarizing the whole AGM incident to those who are interested so here we go.





Q&A

The first question was asked by none other than myself. I went through the report quite a bit on the past couple of days and there was no really burning questions but I still proceed to ask anyway.

Q: My first question was pertaining to the way they have presented the NPI vs NPI on a cash basis (AR page 26). As you can see the NPI on a cash basis for FY2014 was higher than FY2013 and I found out that this is due to the effects of accounting treatment where they recognized the income on a straight line basis so I went to ask what is it exactly since I find it pretty unique.

A: The CEO responded by saying that they have been reporting this way over the past few quarters as they want to track the NPI on a cashflow basis. What happened was the income was smoothed out by the rental upward revision by recognizing them on a straight line basis so rather than we have a lumpy NPI, this gets smooth out over the quarters.


Q: My next question was pertaining to the AU properties, which makes up 33% of the overall portfolio and subsequent questions from others later were also revolving the AU properties, so I shall just consolidate them at one go. The questions were pertaining to the future projection, cap rates, economy, hedging and acquisition of AU properties.

A: For future projection and economy, the CEO concedes that the market is currently soft, especially for commodities cities and that there may be potential vacancies due to increase in supply in certain areas. However, the management is looking actively for potential acquisition in areas such as Sydney, Melbourne and Brisbane because the NPI yield is extremely attractive and they would make a suitable accretive acquisition. For SG properties, they concede that they are not able to find attractive yield at this point in time.

On hedging, the management have hedged by using the borrowings in AU denominated currency which provides a natural hedge against the currency itself. In other words, if AUD depreciates, the NPI would suffer but they will be offset by a lower interest expense and a realized exchange gain. I thought that was a smart move and is something maybe the AHT management can learn something from.


Q: There were concerns relating to the expiring of the tax concession in Mar 2015 which Mr. Tharman has yet to announce. If the concession is not extended, then Reits which hold foreign properties would not enjoy tax discounts and this will severely impact the underlying income of the DPU.

A: One of the legal person stepped up to confirm that it is indeed a risk and all they can do is to wait for further news. However, the concession would only impact future foreign properties acquisition and not current, so it will not impact the two assets they currently have in their portfolio. To me, I feel this is still a big risk but there are other Reits which may be in more danger, think AHT, LMIRT and Ascott. Woof!!!


Q: There was another person who asked about the potential divestment of the 55 Market Street, which only makes up a very minor portion of the overall portfolio. Is the management intending to divest this and focus on properties which yield higher?

A: The Chairman took this question and confirm that this is in amongst one of their agenda list to do and when the right time comes, they will divest this asset at a right price.


Final Thoughts

I really like everything about FCOT at the moment after going through all the numbers.

I thought the management has taken ample steps to ensure that there will be sufficient earnings step-up visibility that increases shareholder's value over time yet at the same mitigate the risk by doing things like refinancing all loans requirements till FY2017 and hedging currency risk appropriately, etc.

Moving forward over the next 2-3 years, it is unlikely that we will see any big activity movement as the step up rental play will still be sufficient to drive the earnings and DPU upward. In fact, I like that the management has plans to focus on organic growth through asset enhancement rather than acquisition, which most other Reits do through raising funds and buy.

The below graph says it all about their future plans. Sufficient step-up rents, no refinancing of loans until FY2017 and average cost of debt at 2.7%.



At current price, it may seem a little overstretched but this is definitely a keep for me for the next few years. They will be announcing their Q1 FY15 results shortly. You can bet that earnings and DPU will keep going up on that.

I am still thinking of whether to go for tomorrow FCT AGM at the same place. If I do, I'll do a summary like the one I did here. The food there was well organized as well. I managed to eat a free lunch today :)

Thanks for reading and cheers to those vested as I am.

21 comments:

  1. Great summary B! I've been watching them as well, this is one of the REITs that I quite fancy. I will look forward to a similar summary if you do go for the FCT AGM tomorrow!

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    1. Hi GMGH

      Thanks :)

      Are you vested in the stock at the moment? It's hard to see the share price falls back at the moment but I'll be watching them closely if it does. There should be little downside surprises from their properties until at least 2017 when the step up will be reduced substantially.

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    2. Hi B,

      Nope, I'm not vested atm, it's very fair-valued IMO, and I only like ugly looking things XD

      But I think that they run a very sound ship, so if there is any weakness in future, I'll be looking at it as an opportunity to join the party!

      You should haven taken a selfie with the FCT CEO, that would have been so cool!

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    3. Hahaha, I wanted to but think he'll be more discreet than anyone out there. Otherwise, others would follow to do the same. :D

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  2. Hi B,

    Thanks for sharing about FCOT AGM. I am vested in the REIT, but I've never attended a single AGM before. :(

    I often wonder why the market gave FCOT a steep discount despite its good fundamentals.

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    1. Hi SRSI

      Congrats. The results announced this evening for their q1 must have delight you. Fy15 is going to be an interesting year for fcot and the shareholders. Let's enjoy it first. I guess otherels still prefer grade A commercials such as capcom. The stock price shoots up the sky.

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  3. Srsi, I think it's because the sponsor is not as good as the rest, hence the market gives a discount to the price ;)

    B, enjoyed your post :) never went for atm before too, haha! But unlike in the past, I've no wish to go now :)

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    1. Hi LP

      Thank you :)

      Any particular reason what you dislike about agm? Was it not that useful for you? Sometimes I find it quite boring though I managed to find some news to bring home with me. Still better than not.

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    2. I think I'm not going to get much out of it..i'm just not those kind of scuttlebutt investor I guess. Maybe it's the skin in the game thingy...if a huge part of my networth is in a company, I'll be more inclined to get all I can about the company. Any company I invested is less than 10k...worth my time? Maybe not haha

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    3. Ahh ok, I get what you mean.

      This is also the reason why I am going more concentrated than diversifying them into much more smaller pieces. A couple of lots will not entice you enough to do sufficient research and going to a deeper extent to knowing much more than the general public information.

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  4. Hello B,

    Thank you for attending the AGM and updating us about it over here. I am confident in Fraser managements. May be also looking into this area as well! Who knows next year i may join u inside the AGM and listen to Q&A and not forgetting the free food :D

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    1. Hi Jfree

      You are welcome :)

      Hahaha please let me know if you are attending any of the agm. Im sure it will be an interesting experience, get to meet the management etc.

      Guess who is sitting next to me during the agm, it is the CEO of FCT. We talked quite a bit and it is his turn tmr morning. Lol you never know what you are going to get.

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  5. B : Nice summary, I read an article today that this year commercial REITS will be sizzling hot! Good for you ;-)

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    1. Hi Richard

      Thank you :)

      They are indeed on a bull run this year so I will.be watching how high can they go. The higher the better hahaha

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  6. Hi B,

    You took leave for the AGMs? I have never been to one but seeing the questions that get asked, I think it's quite worthwhile just to learn from how the management present themselves and answer questions. And you get to interact with CEOs.. that's cool!

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    1. Hi Jes

      Yes I actually did even though FCOT is not one of my core holdings.

      I am planning to do so more especially for the core holdings where my stake is more serious, got to understand the business, operation and management better. The better it is the better for me to evaluate and make decision.

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  7. Hi B,
    Thank you for taking time to attend FOCT AGM and summarised it for the benefits of other shareholder. The present management have done a good job in reviving this reit (former Allco). Vested in FOCT and FCT, I am looking forward for your next post in FCT.

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    1. Hi Stock Hunter

      Hope the summary helps those who are vested or interested to know more about the company.

      I didn't manage to go for the FCT AGM as I thought it was pretty much the same as the one I had been last year. In addition, the company has done pretty well for this year so there's not much burning questions that they have to address.

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  8. Hi B,

    Thanks for the summary. I did not follow the market lately.... Wowow FCOT already cross 1.50! Not too shabby for me who invested early because of the uptrend in rental in ATP.

    The question is if we can add more now?

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    1. Hi Rolf

      Ahh, pillow stocks??? :D

      I call you up when they are at $1.60 k?? Hahaha

      The ATP reversion over the next 2 years will have great impact on the DPU but I think the increase in share price might have taken that now into effect. I don't think I will be adding more at this price as the risk has now increased by adding them at current price but I'll definitely keep this for the next 2 years at least... and review them back every year.

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  9. Hi B,

    Golden Pillow... ???

    Due to the recent hoohaa....Definitely is a dangerous word... Replace by "appropriately" for you...

    I really admire your detailness!

    To me ATP still consider lower tier office. I prefer this than MBFC type of office. Potential for rise is higher n more resilient during crisis.

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