Why I prefer CMT over FCT

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Featured Image source SGInvestors io Screenshot source CMT and FCT 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 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 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 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 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 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 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 https www ura gov sg Corporate Media Room Media Releases pr18 48 https fct frasersproperty com misc ar2017 pdf RETAIL PROPERTY MARKET OVERVIEW section http cmt listedcompany com misc ar2017 pdf Independent Retail Market Overview section 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 14 12 2018 CMT s P B ratio is at 1 09 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 …

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Why I prefer CMT over FCT

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