Tuesday, April 8, 2014

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.

14 comments:

  1. Hi B, there are many offices there so I guess F&B can attract lunch crowd? As well as people who go for expo. Personally I would eat at changi city point before going to expo as expo does not have much food choices. Just my tots. But I am not vested though. :)

    ReplyDelete
    Replies
    1. Hi Melting Starz

      Like you said, you only go there for the food. What about the overall retail experience? If the mall is highly concentrated only on the F&B, then overtime it may lose the conscious quality of the malls it can bring out. As a shopper, I would rather see much diverse activities inside the malls. Dining is just a part of the experience :)

      Delete
  2. Hi B,

    I dont think the high concentration in F&B will be a problem. Changi City point is located very near to the business district park and lots of office there. The nearest shopping mall will be there and lunch crowd will always be there. I been there on weekday lunch hour, most f&b outlet are quite packed. Weekends are a little quieter.

    ReplyDelete
    Replies
    1. Hi Little Boy

      The concentration in F&B is not a problem at first glance but they are generally crowded only during the lunch or dinner hours on weekdays and weekends. If you are going there as a shopper, then you would want a wider shopping experience that will include movies, plays or other activities.

      The high concentration in the F&B can also create a higher competition amongst the retail. So I'm not sure if they can sustain that over longer periods of time.

      Delete
  3. Good move by FCT. Hey, the mall has many outlets and boost two foodcourts!

    Not vested. Look forward to more fantastic updates from you.

    Lets build our wealth with SGX stocks!

    Regards,
    SG Wealth Builder
    www.sgwealthbuilder.com

    ReplyDelete
    Replies
    1. Hi Gerald

      I guess that's the only way for FCT to grow now that their organic growth via AEI is limited. But that comes in timely as well with renewals from CCP coming up.

      Delete
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