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Frasers Centrepoint Trust: Foraying Into Changi
Corporate Digest, Featured | 21 May 2014
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By: Peter Ng
Articles (81) Profile

Frasers Centrepoint Trust (FCT) has recently proposed to acquire Changi City Point (CCP), a three-storey multi-tenanted shopping mall with one basement level, from Ascendas Frasers. Ascendas Frasers is a joint venture company set up between Ascendas Development and Frasers Centrepoint, Frasers Centrepoint Trust’s sponsor.

C For Changi
Located in the Changi district, Singaporeans might regard the shopping mall’s locality to be out of the way or “ulu”. Further to this, according to a statistic published by Singstat in 2013, Changi’s population merely stands at 2,500, making it one of the least populated districts in Singapore. On hindsight, this appears to be the perfect hangout which can accommodate the entire district.

Unlike other suburban malls in FCT’s portfolio, the population figure does not spell a convincing case for shopper traffic, which is a key performance indicator to look out for in a shopping mall.

Unique Shopper Catchment Area
However, it should be noted that CCP serves to be a unique shopper catchment area which stretches beyond the Changi district’s domestic population.

First, in close proximity from CCP are Changi Business Park and Changi LogisPark, which house approximately 26,000 workers, spanning across different types of work such as office, retail, hotel and logistics. Their total spending in food and non-food items across the various retail components in Changi was recorded at $129.9 million in 2013, while spending is expected to grow 39 percent to $180.5 million by 2018, riding along the growth in workers in the area.

Changi Business Park and Changi International LogisPark
has a population of 26,000 workers

Student traffic also appeared on the list which CCP aims to capture. Notably, they are students from Singapore University of Technology and Design as well as the already completed Institute of Technical Education College East. Despite command a lesser disposable income which directly translates into lesser retail spending, the aggregate population of 20,300 students is simply too big to ignore.

Not Quiet On Weekends
As a large number of shopper traffic is mainly accounted from the patronage of workers and students, when the weekend comes the question looms towards how would potential shopper traffic be during weekends?

Located right opposite Expo MRT station, this is not only a plus in terms of accessibility for patrons to the mall, but more importantly provides an option for the 7.5 million visitors to Singapore Expo per annum.

Patrons of Singapore Expo during one of the events held at the premise

By far and large, Singapore Expo generates high traffic flows during events such as travel fairs and the ever popular “IT Show”. As these events are normally held during the weekends, assuming a proportion of traffic flowing towards CCP does appear to be justifiable, considering that there are limited retail options available in Singapore Expo.

The advantage of being strategically located just across Singapore Expo allows shop tenants to enjoy higher shopper traffic, compared to the quiet weekends.

Healthy Occupancy Rates
Next, CCP is currently registering a healthy 97.8 percent committed occupancy rate with anchor tenants such as Koufu, Cold Storage, and Challenger. These tenants have rock-hard business models and their tenancies can be expected to remain for a long time.

Focus Still On Price
At the end of the day, what is crucial would still be the amount which FCT is proposing to acquire CCP for. When CCP’s price tag or valuation of $305 million is matched against an annualised net property income (NPI) of $22.1 million, a net rental yield of 7.2 percent is derived.

 

Compared to the other properties under FCT, CCP appears to be yielding at a fair rate.

Investment Merits

  • Being the only shopping mall around Expo MRT station, at this juncture, CCP is essentially a retail monopoly
  • Given the factors, shopper traffic is expected to grow further which will potentially have a positive impact on its rental yield
  • Low weekend traffic is well-mitigated by leveraging on frequent events and exhibitions taking place at Singapore Expo

Investment Risks

  • CCP’s Weighted average lease expiry standing at 1.68 with more than 80 percent of tenancies expiring between 2015 and 2016
  • A private placement along with debt is utilised to finance CCP’s acquisition with exact details that are not finalised yet
  • Potential competition from Eastpoint Mall and Project Jewel that are set to open in late 2014 and 2018 respectively

SI Research Takeaway
Lastly, what most would and should be concerned of is the impact on distribution per unit (DPU). With the acquisition of CCP, FCT’s projected annualised DPU of $0.111 represents a 1 percent increase from $0.1099. Given its growth prospect and the seemingly monopolistic location, rental yield can be expected to grow further at CCP and ultimately lift FCT’s DPU.

Disclosure: I have a long position in FCT.

 

Backed by a strong interest in investments, Peter's research spans across a range of industries, with his focus placed on companies listed on the SGX.

Please click here for more information about this author.

Frasers Centrepoint Trust  2.670 -- --   
Business: Co is a developer-sponsored retail real estate investment trust.

Insight: Apr-19, 1H19 NPI rose 3.6% to $71.8m, as gross rev... Read More


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