Frasers Centrepoint Trust - Anchorpoint Divestment

About a week ago, Frasers Centrepoint Trust (FCT) announced a planned divestment of Anchorpoint Mall to an undisclosed buyer, for a price tag of $110 million. It's a simple announcement, but here's why it matters in multiple ways:

1. Asset not recycled to sponsor, Fraser's Property (FP)

Typically, REITs and their sponsors would recycle properties to each other. A property developer would build a property, stabilize it, before selling it to the child REIT to recognize a profit. On the other hand, a REIT could pass underperforming assets back to the sponsor (eg. Bedok Point, 2020) for redevelopment. 

However, In this case with Anchorpoint, the property did not go back to FP. While this does not directly affect FCT at first glance, this slight irregularity further shows the sponsor's weak financial standing currently. Compared to other major property developers in Singapore, FP's debt situation is quite significant. A weak sponsor will create weakness and uncertainty in the related REITs (eg. Lippo Family). As it stands, FP still looks pretty stable, but it remains to be seen whether the condition will deteriorate to an alarming state.

2. Removing Underperformers

Earlier this year, FCT divested Bedok Point, one of their poorest performing asset by occupancy rate, to FP. Anchorpoint's divestment follows the same routine, further bolstering FCT's overall portfolio quality.

3. Decent valuation

FCT purchased Anchorpoint at $36 million in 2006, and now plans to divest it for $110 million. Even after accounting for inflation, this is still quite a significant gain from divestment. This exemplifies a good management that maintains and improves on their assets actively (eg. Anchorpoint AEI in 2008).

4. Building financial muscle

With the mega acquisition of ARF a few months ago, FCT's gearing rose 4.3% to 39.3%, leaving it with less debt headroom to pursue further acquisitions. The cash raised from Anchorpoint's divestment will help it prepare for any further acquisitions down the line, if the opportunity arises.

Potential acquisitions to look forward to in the near-mid term could be:

    a) Waterway Point - By increasing her stake in Sapphire Star Trust up from 40%

    b) Northpoint City South Wing - By buying over some or all of FP's 50% stake

Both highlighted properties enjoy decent occupancy rates of above 90%, based on FY19 values. The FY20 occupancy rates, published in Dec 2020, should recover in time with COVID effects wearing off.

Thanks for reading my review of this piece of news! I hope I managed to shed more light on FCT's future prospects!

Cheers,

InvestingNugget

Author's note:

At the time of writing, I am a shareholder of FCT. This post does not constitute a buy/sell recommendation for any counter.