Frasers Centrepoint Trust: Good To Go?

Most real estate investment trusts (REITs) were having a field day with the not-so-unexpected cut of 50 basis points of interest rates. One REIT stood out as seen not benefiting from the rate cut, which is Frasers Centrepoint Trust (FCT).

 

Screenshot of FCT properties from presentation slides of FCT’s business updates for the Third Quarter ended 30 June 2024.

 

Looking at its price movement, it had seen a huge rise during the month of August, where the United States Federal Reserve (or Fed) had dropped a big hint on interest rate cuts. It reached a peak of SGD 2.41 just around a week before the Fed’s announcement, but after which, it went down to SGD 2.27 when the market week ended on 20 September.

There were people whom I know asking about what was happening, and I just shrugged (read here about why asking “what is happening” does not help much in the situation). From their third quarter financial highlights, the gearing level stood at 39.1% and their average cost of debt was 4.1%¹. This meant that the rate cut should benefit FCT given the not-so-high-but-high-enough gearing ratio and the cost of loan they were getting, so theoretically there are some justified push-up factors for its price instead of going opposite.

With the last known book value of SGD 2.26 as of 31 March 2024², at SGD 2.27 it represented a good bargain, since FCT was one of the stronger retail REITs known, and with 100% exposure in Singapore properties, thus could command a higher premium. This is a good example of a fundamentally sound counter that was somehow being dragged down for reasons, obvious or not, and for us this show of price weakness meant a good chance to average up our FCT holdings.

Disclosure

The Bedokian is vested in FCT.

Disclaimer

1 – Fraser Centrepoint Trust. Business updates for the Third Quarter ended 30 June 2024. 24 Jul 2024. https://fct.frasersproperty.com/newsroom/20240724_193109_J69U_7OBO7A3PF3O39XSV.1.pdf  (accessed 22 Sep 2024)

 

2 – Fraser Centrepoint Trust. Results Presentation for the First Half Financial Year 2024 ended 31 March 2024. 25 Apr 2024. https://fct.frasersproperty.com/newsroom/20240425_075534_J69U_VG71VYH4JFEHK0J8.3.pdf  (accessed 22 Sep 2024)

25 Or 50 Basis Points?

The investing and trading world will be waiting with bated breath this coming Wednesday and Thursday (17 and 18 September); the Federal Open Market Committee, better known as the Fed, is expecting to announce an interest rate cut for the first time in around three years. After the intent was made known by the Fed back in August, you could observe equities, real estate investment trusts (REITs) and even gold were rising in anticipation.

 

Picture generated by Meta AI

While the consensus among economists, analysts and retail investors were looking at a highly probable 25 basis points cut, there were some quarters that speculated a higher rate cut at 50 basis points. The reason for the latter is mainly on the viewpoint that the prolonged high interest rates are hurting the market more than it should, and this opinion is gaining traction. As of 13 September, the CME FedWatch had placed an equal probability (i.e., 50%) for a 25 and 50 basis point cuts; just the week before, the 50-basis point cut was given only a 30% chance¹.

 

Potential Reaction Of Markets 

Interest rates play a huge part in the performances of the various asset classes; equities, REITs, long term and corporate bonds, and gold are on the uptrend, while short term treasuries and cash are seeing a downside. From my observations and guesstimates, my conclusion is that the markets are currently pricing in a 25-basis points reduction. However, if 50 basis points is announced, the market volatility would be higher, whether is it upwards or downwards is depending on which asset class, sector / industry and companies that you are looking at. 

This means REITs may rise further, gold may yet reach another all-time high, banks may feel a slight downward pressure due to the deemed lower net interest income, the USD/SGD exchange rate may go down to the level not seen since late 2014, etc. Notice the word “may” used, because we do not really know how the markets will react, hence the word “potential” for this section heading.

For this round, I may adopt the following actions (not exhaustive):

• Change more USD and/or buy more USD denominated counters.
• Average up fundamentally sound equities and REITs that do not rise much vis-à-vis the general market rise. 
• Average up corporate bonds.
• Buy into banks if price weakness is shown

Whatever the interest rates, and macroeconomic conditions, good or bad, there is always an opportunity to invest in the markets.

 

Disclaimer

1 – FedWatch. CME Group. 13 Sep 2024. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html (accessed 15 Sep 2024).

The Only Answerable Person On One’s Investment Is To Oneself

On top of financial news channels and websites, there are also hundreds, if not, thousands of, blogs, video channels and chat rooms/forums discussing about investment and trading in general. While most of these resources are informative, there are some which, put it mildly, trying hard to prove or disprove certain viewpoints. A healthy discussion/debate is constructive and learning points can be taken from them, but there exist participants where his/her convictions on certain opinions are so strong that he/she would commit most or all resources just to make a point.

Picture generated by Meta AI

Frankly, this “I will prove that I am right by (doing something)” existed way before the internet came about, or even newspapers and smoke signals. The propensity to prove correct one’s assumption/prediction is one of the basic human biases known as overconfidence. Amplified by the easy access to mass communication tools and means, it could also develop into stronger narcissistic tendencies, which includes the hyper-aversion to “loss of face”. 

These traits and behaviours in the world of investing/trading are a definite no-no; yet, despite these basics, there were those who fell into such traps. With social media and the deemed credibility that comes with it, the negative impact of having a wrong outcome is very great. This is why mistakes are usually either glossed over, or defended with more vigorous “convictions”, to maintain the presumed invincible aura. When we are investing or trading, we are doing it for ourselves. When we are showing it the world, we are sharing the tools and tips so that we can learn from one another.

Borrowing a famous saying about fooling someones and everyones all the time or sometimes, I had modified it to the following:

We can be always right some of the time.

We can be sometimes right all the time.

But we cannot be always right all the time.

Remember the title of this blog post.