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FCOT: Distribution Reinvestment Plan (DRP).

Tuesday, February 11, 2014

Received another DRP offer and this time it is from Frasers Commercial Trust (FCOT). This is probably not going to see any take up because the price of $1.2389 per new unit to be allotted is higher than what we could get from Mr. Market now which is $1.235 per unit.

It is probably good to be reminded that the headwinds for REITs could get stronger and if we want to invest in REITs, we have to recognise this. One of these headwinds is an environment of rising interest rates.

So, the DRPs which S-REITs are pushing out now make sense because, if taken up, they will lead to lower gearing levels. The REITs could pay down their debt with the funds as well when they fall due. This is probably a good thing for unit holders too.

To me, it only makes sense to take part in DRPs if we want to increase our long positions in the REITs concerned. However, with rising risk free rates, unit prices of S-REITs will continue to experience downward pressure, everything else remaining equal. So, to me, it doesn't seem very prudent to take part in DRPs at this point in time or in the near future.

I am not against others taking part in the DRPs to strengthen the balance sheets of the S-REITs I am invested in, however. In the meantime, I am quite happy to continue receiving income from these S-REITs and possibly increasing my investments in them only when Mr. Market makes offers too attractive to ignore.

Related posts:
1. Distribution Reinvestment Plan: First REIT and CIT.
2. AIMS AMP Capital Industrial REIT: DRP.


The Sun said...

I think if one would take the view that REIT prices would fall from current levels, especially if interest rates are to rise in the foreseeable future, it would be wise to continue building up one's warchest now so as to take advantage of subsequent price declines (should this materialize).

AK71 said...

Hi Sun,

Everything else remaining equal, yes, that would seem like the prudent thing to do. :)

Kevin said...

"Hewlett-Packard Enterprise Singapore Pte Ltd (“HPE”) intends to vacate an aggregate of 178,843 square feet (“sf”) of space at Alexandra Technopark (“ATP”) upon the expiration of relevant leases on 30 September and 30 November this year."

"HPE currently occupies a total of 191,846 sf of space at ATP. The space to be vacated by HPE
constitutes approximately 17.1% of the total net lettable area of ATP and 6.6% of FCOT’s total
gross rental income for the month ended 30 June 2017."

"The Manager is still in discussion with another tenant, Hewlett-Packard Singapore Pte Ltd (“HPS”), which currently occupies approximately 304,920 sf of space at ATP under leases expiring on 30 November 2017 and constituting approximately 11.1% of FCOT’s total gross rental income for the month ended 30 June 2017, with regard to their plans for the space. The Manager will announce material developments with regard to these leases at the appropriate time."

It would be a big big blow to FCOT if HPS decides to vacate too. If I remember correctly, HPS is moving or have already moved into a BTS facility under MIT which happens to be very near the vicinity of Alexandra Technopark.

AK71 said...

Hi Kevin,

For sure, it would be a big blow.

We are talking about a total of 17.7% of gross rental income for FCOT here.

As I have a very small legacy investment in the REIT, I am not too concerned but for investors who are substantially invested in the REIT, this could cause some anxiety.

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