FCT finally acquires Changi City Point

FCT has finally announced a proposal to acquire Changi City Point at $305 Million to inject the abovementioned asset into their existing sub-urban malls portfolio.

 

 

I’ve got a feeling that investors have been waiting for this acquisition for some time now, given the recent lacklustre organic growth opportunities especially on their performance for YewTee and Bedok Point in the recent months.

 

My take on Changi City Point

For those who have not been to Changi City Point, they are a sub-urban malls located in the heart of Changi Business Park and is close proximity to the residential estates of Simei, Bedok, Expo and Tampines area. Strategically, they are well placed on the heart of the more congested sub-urban areas, so crowd will not be an issue. More details on Changi City Point is as follows:

 

Gross Floor Area (sq ft)	306,375
Net Lettable Area (sq ft)	207,237
No. of Committed Leases	134

 

Breakdown by Types	Percentage (%)
F&B	39.0
Retail	50.0
Service	8.8
Committed Occupancy Rate as of 28.02.2014	97.8%

 

The one thing I wanted to highlight if you have not been to Changi City Point is that I always feel their malls are too concentrated with F&B. As you can see the breakdown from the above table, F&B alone makes up 39% of the entire leased area. Comparing this to other FCT malls like Causeway Point and Northpoint, their F&B only makes up 23.5% and 28% of the entire netted lease respectively. That is not to say it is bad for Changi City Point to have such a large concentrated F&B as part of their committed lease, but the higher gross rental they can derive from these and you can probably understand why they do so.

 

Based on the table below for the other 2 FCT malls, we can see that F&B, Fashion and Beauty are consistently the main income generator while Department Store, Education and Supermarket are consistently the main income destroyer for FCT. Having said that, we cannot have a mall that is full concentrated only on the main income generator as it will defeat the purpose of having a diversified mall. A right mix of tenants is desired. I just wonder with the high F&B concentration for Changi City Point will have an impact on competition and a drop-out from these high numbers in the future that will impact DPU.

 

Causeway Point
Top 5 Leased by Trade Mix	%	Top 5 Gross Income by Trade Mix	%
F&B	23.5	F&B	28.8
Fashion	18.0	Fashion	25.7
Department Store	14.4	Household	10.6
Household	12.0	Department Store	6.6
Leisure/Entertainment	9.2	Beauty	6.5

 

NorthPoint
Top 5 Leased by Trade Mix	%	Top 5 Gross Income by Trade Mix	%
F&B	28.0	F&B	31.7
Service/Education	17.1	Fashion	27.7
Fashion	16.3	Service/Education	12.2
Supermarket	8.7	Beauty	7.2
Books/Music	7.0	Healthcare	5.0

 

My take on the acquisition

Management have indicated that the acquisition will be yield-accretive for investors.

 

As part of the equation to finance the acquisition, management have decided to go with the private placement instead of issuing rights issue which supposedly can benefit the larger minority crowds.

 

Given that the acquisition will most likely be funded by half equity half debt, we probably will see gearing rising up to around 35% (739/2135) which is still prudent in management’s view.

 

While I most probably cannot participate in the private placement exercise, I hope they do not set its price too low to institutional investors as it will affect the market sentiments of the stock price which currently sits at $1.78.

 

Given FCT management track record of maximizing shareholder’s value in the past years, I have no doubt that they are well on track to achieve another round of high record DPU for the company as well as the shareholders.

 

 

Vested with 30 lots of FCT as of writing.