Frasers Centerpoint Trust – Northpoint AEI Public Service Announcement

This is a follow-up post to the earlier one titled Now Yield See It, Now Yield Don’t. Brexit has expectedly destroyed any short-term likelihood of Fed interest rate hike, which might have fueled the recent REIT push.

Buying FCT? Just want to quickly point out something for folks who don’t read quarterly presentations.

Disclaimer – Any parts of the story that bears resemblance to the real world is purely coincidental

A Tale Of Lemonade

Freddy runs a lemonade stand by the side of the road. Every day, he puts exactly 100 bottles of freshly made lemonade on the table because there is absolutely no space for a bottle more. On average, he sells 99 bottles a day.

One day, he was informed by Faye, his cousin, that she plans to set up a hotdog stand right beside him, and the two stores can be integrated seamlessly.

In future, they could enjoy synergy in sales. Customers of one stand could patronize the other, or they could sell hotdog+lemonade set meals. Being relatives, he agreed to her proposed plan. He wasn’t expecting the bad news, though.

fct-northpoint-occupancy

For the duration of hotdog stand construction until September 2017, part of his table that is connected to the hotdog stand will be dirty and messy due to the ongoing work and therefore, he could only put and sell an estimated of 76 lemonades a day, a drop of 23 bottles.

fct-northpoint-occupancy-projection

Freddy has siblings who also operate lemonade stands. Freddy’s stand is the second largest stand in the family and contributes 27.8% of the family income prior to the construction.

fct-northpoint-income

By how much percentage would the family’s income decrease by as a result of the construction beside Freddy’s lemonade stand?

Approximate decrease in income = 27.8% * (99 – 76) / 99 = 6.45%

Let’s say the combined value of all the lemonade stands in the family is $200 before the construction, then would it be worth only $188 (6% less) in the short term, because lemonade income will decrease temporarily?

Or would it be worth $200 (or more) since lemonade sales will eventually rise back to pre-construction level, or even higher, due to the positive impact of the integrated hotdog stand?

How much would you be willing to pay for the lemonade business now?

Too Long ; Didn’t Read

In case you don’t read quarterly presentation slides, full integration at all levels between Northpoint and to-be-launched Northpoint City (retail) is on-going in phases. FCT’s enviable record of nine consecutive years of DPU growth might be under threat.

fct-northpoint-dpu

Distributions for the upcoming year and a half will be volatile. Invested in FCT? You might want to check out the upcoming slides when they’re released.

Recap : Frasers Centerpoint Trust May 2016 Presentation

Now yield see it, now yield don’t, again?

Story-telling

Like my short story? I wrote an even more epic one here. Hope you will enjoy it too.