Wednesday, 6 December 2017

Case Study - Frasers Ctrpt Trust Investment Returns

Changi City Point

My experience with Frasers Centrepoint Trust (FCT) since 2013 has been a fruitful one. It may be timely now to review what is the actual return.

For an investment with cash dividends at different dates, plus my several purchases, IRR is a suitable measurement  as it takes into account actual out and inflow of cash.

FCT Share Price Performance since May 2013

In this period, FCT's highest price was around $2.35 in May 2013. It dropped 30% to around $1.65 in early 2014, due to initial news on Fed's tapering of QE. Subsequently, it had major drop in 4Q 2015 (around 17%) and 4Q 2016 (around 14%).

Actual IRR Based on Actual Lump Sum Investments
I bought 3 batches of FCT in Sept 2013, Oct 2013, and Oct 2014, and have been holding them till now with no sales.

Here is a screenshot of the IRR table. Note that I use the 2 Dec closing price of $2.21 and $50 brokerage fees to calculate the final value.

My IRR over 4 years 4 mths (Sept 13 to Nov 17) for FCT is 11.11%.
  • Total capital invested - $12,966.35
  • Total dividends received - $3,132.82 (24.1% of capital invested)
  • Final value of holdings is $15,420 (capital gain of 19%)
Contrary to popular belief that retail Reits would be severely impacted by online shopping and consumers gradually veering away from mall visits, I decided FCT was investment-worthy due to its consistency in dividend payments, strong fundamentals with a nice blend of growth prospect in Woodlands and Yishun. I believed its resilient sub-urban malls catering to residents' non-discretionary shopping needs will remain attractive.

The IRR over 4 years at 11.11% is rather good and this has vindicated my beliefs.

IRR Simulation - Quarterly Regular Investment
What if, instead of 3 sporadic lump sum investments, I did a Dollar Cost Averaging (DCA) by buying into FCT every quarter? Could I have done better?

In this simulation I build and maintain the discipline to save up $1k per mth, and buy $3k worth of shares every quarter, ignoring the share price.

Some key info:
  • Purchase based on closing price of last trading day of that quarter
  • Costs fixed at $29 per transaction; cost of sell transaction on 2 Dec is $120
  • First and last purchase in Dec 2013 and Sept 2017. A total of 16 tranches and 23,600 shares acquired
For this regular investment planIRR is 11.43%. This is a better returns over the lump sum investment earlier.

Here are other key info:
  • Total capital invested - $46,934
  • Total dividends received - $6,018.33
  • Final value of holdings - $52,036

IRR Simulation - Bought at May 2013 Peak Followed by Regular Investment
Looking back, it was lucky that FCT had a major drop to $1.7 in Sept 13. It allowed me to enter at a relatively good price. Should the plunge did not happen, or I was not disciplined enough, it is highly possible that I would have bought at a much higher price.

Lets assume the worst case scenario in which I bought an equal amount of 4,000 shares (as per what I actually did in the first simulation) at May 2013 market peak of $2.32.

Naturally I would be horrified by the steep 30% drop later. Panicked and not knowing what to do, I decided to start a  quarterly DCA of $3k. I started buying in Sept 13 up till Sept 17. 

For this mode , my IRR would be 9.17%.
  • Total capital invested - $59,225
  • Total dividends received - $8,923.03
  • Final value of holdings (29,200 shares) - $64,372
Despite buying at the highest price in the past 10 years, I still managed to earn a good annual return of 9.17%.

There are a few take-aways here.

Be clear in your objective in investing in a Reit
I bought FCT with the goal of earning regular and steadily increasing dividends. It has a clear positioning in my portfolio - a dividend play. I didnt sell through the years, as it was still able to fulfill what its set out to do.

This echoes my earlier thoughts on giving your stocks time to serve its purpose.

Importance of Reit quality - assets and management
2 intertwined factors convinced me of the Reit's quality - a strong management bringing about high footfall to the malls, and the unique locations of malls making management's job easier. My confidence were reinforced by numbers and track record - increasing dividends and lease renewal, plus track record in  acquisition and asset enhancements.

FCT's past performance shows what benefits a strong management plus good assets can bring to its investors.

Merit of regular investment
Despite my relatively low cost price of $1.85, and its share price range-bound between $1.7 to $2.3 past 4 years, quarterly regular investment managed to improve my returns from 11.1% to 11.4%.

In the third simulation, despite buying at a ten-year market peak, I would still earn a respectable returns of 9.17%, through regular investment.

In both scenario, regular investment helped improve my returns.

Essentially regular investment removes the guesswork of timing your purchase (which is tough for most investors) and allows one to buy more at cheap price. Over time, this tends to lower the average cost price. And if the share price shows larger fluctuation amidst a stronger upward trend, regular investment would have done even better.

So, if your research shows that the company is fundamentally sound, and you have set aside monthly investment funds from your salary, you really should not be too concerned about the current expensive price because regularly investing into strong companies would ensure that you earn decent returns.

And it also reduces speculative flavour in your investment - attempt to catch market low or high, take profit and lose sight of big picture.

I elaborated that by investing in quality Reits with strong fundamentals over long term, one would not do too shabby. Regular investment taking advantage of DCA tend to lower cost price and improve returns as well, even when one first bought at market high.

This study in also limited in a sense that it is just one Reit. And the period of study was also a time when most Reits prospered.

However, I think the most important lesson here, is investor has to learn basic investing knowledge, understand market psychology, and build mental discipline to stay the course. These are life skills that enable investors to be self reliant, and earn real investment returns regardless of industry, market condition and companies.

*Email me at or fill up the contact form at top right corner if you want to improve your investment returns or for a quick chat on stock investing. 

*Opinion expressed is for education and illustration purpose only. It does not constitute a buy or sell call. 


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