To The Moon

$FRASERS CENTREPOINT TRUST(J69U.SI)$ FCT and FPL announced last night that they will be jointly acquiring a 50% stake in Nex, a suburban retail mall located in Serangoon, Singapore, for a consideration of S$652.5m from Mercatus. The agreed property value for the 100% stake is S$2,077.8m. After the acquisition, FCT and FPL will hold 25.5% and 24.5% stake in the mall, respectively.

Source: FCT

This acquisition will add another trophy asset to FCT’s portfolio, similar to other premier FCT-owned malls such as Northpoint City and Waterway Point! The transaction will solidify FCT's position as the leading player in the suburban retail mall market in Singapore and establish it as the largest owner of suburban retail shopping space in the country. NEX is directly integrated with the Serangoon Bus Interchange and the Serangoon MRT station that serves as an interchange station for the North East Line and the Circle Line.

Source: FCT

The mall, which is the largest in Northeast Singapore and one of the largest suburban retail malls in Singapore, has a committed occupancy of 99.9% and key tenants include Fairprice Xtra, Isetan, Food Junction, Shaw Theatres, H&M, Food Republic, & Joy Japanese Food Street.

The deal is also expected to be accretive to FCT's DPU, and will be fully funded through cash and debt with the support of the sponsor, with FCT's pro-forma FY22 leverage rising to 38.5% from 33.0%. It is also expected that the market's concerns over a potential equity fundraising by FCT will finally be put to rest.

Source: FCT

FCT disclosed that the entry yield for NEX is high 4% level, similar to the recent acquisition such as Link REIT’s acquisition of Jurong Point. However, NEX mall is superior in terms of asset quality, footprint, and longevity of returns, as well as having a longer land lease of 85 years. The mall's growth potential is further strengthened by the increasing residential population in the Serangoon area, both in private and public housing. The acquisition price per square foot is also reasonable when compared to peer malls in close proximity to MRT stations and interchanges. The long-term success of the acquisition will depend on FCT's ability to enhance the mall's tenant mix and potential opportunities for additional enhancements through asset enhancement initiatives.

Source: FCT

Overall, I am very excited about this deal for FCT as NEX mall is a highly strategic fit with FCT's existing portfolio of Northeast suburban malls!

Other updates on FCT’s 1Q23 performance

FCT plans to undertake an AEI (Asset Enhancement Initiative) at Tampines One, with an expected return on investment of 8% on the enhancement component. The AEI will include the addition of new space, which is already over 70% pre-committed, and the transfer of NLA from M&E spaces and lower-yielding floors to B1, L1, and L2. The AEI is set to begin in the second quarter of 2023 and be completed in the third quarter of 2024, with the mall continuing to operate during this time.

Moreover, FCT’s Retail occupancies have continued to improve, reaching 98.4% in the first quarter of 2023, driven by higher occupancies at Changi City Point and Century Square.

However, finance costs rose 50 bps to 3.5% in the first quarter of 2023, with gearing rising to 33.9%. Higher cost will be expected in FY2023, largely due to 21% of outstanding debt being due for refinancing in 2023, and the expiration of energy hedges in the second half of the year.

Conclusion

The market has responded positively to FCT's announcement this morning. It appears that retail REITs are becoming an attractive investment option post-pandemic. Nonetheless, as always, it is important to conduct thorough research and due diligence before making any investment decisions!

@TigerStars @Daily_Discussion