Frasers Centrepoint Trust Q3 2012 Results–Looks well managed!

Frasers Centrepoint Trust (FCT) announced their latest result. This for me, is one of the ways to tap into some of the best REIT managers in the region.

For starters, FCT has a great asset enhancement and rental management such that they do not ask for a lot of cash call (rights issues), yet was able to generate progressively better Dividends per share. Another good example are their good work in turning over Allco REIT from shit to FCOT with much better results (see report here).

Review FCT official results [here] and slides [here]

The key recent driver for FCT have been the purchase of Bedok Point adding a full quarter contribution compare to last year as well as Asset Enhancements to Causeway point.

Bedok Point turned out to be a good acquisition bringing in more property income than forecasted.

The key to good management

The key to good REIT management is that the management is able to

• optimized the limited assets at their disposal to benefit the share holders
• increase DPU consistently
• increase return on investment through strategic acquisition and not sponsor dumping
• taking on debts at the appropriate level
• manage the interest cost well
• carry out asset enhancement to improve profit organically

A review of its track record shows a progressive growth in dividends per unit. We are forecast a 9.9 cent full year dividend per unit.

This brings about a 5.6% dividend yield at $1.75. The progressive better performance could also be one of the reason the market is valuing it at higher and higher prices because they are expecting this good performance.

This improvement in DPU have not been brought about by financial engineering but more of organic growth

• Debt to asset stayed at 30% to 32%
• Total asset remains close to last  year
• Average cost of debts reduced from 3.04% to 2.75%
• Interest cover improved from 4.62 times to 5.2 times

Conclusion

Investors often look to attractive yields, but in the REIT domain a good management is important for long term growth.

FCT perhaps like AREIT is not cheap if you value it by EV/EBITDA, PE or PTB. But perhaps there is a reason for the premium, because although it is not cheap, Market identifies that this is able to bring about better future returns.

This is one of my regret for not getting into. However, I will be buying this when I can assess how much dearer I am paying for good management.

Good management is important, but it is not a economic moat because management will retire or lose their way.

This would be a good pickup in a correction

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